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Mon 11 Mar 2019 12:25 PM

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Saudi Arabia is said to extend deep oil output cuts into April

The move is the latest sign Riyadh is determined to regain control of the oil market as prices remain well below the level that many OPEC members need to cover their government spending

Saudi Arabia is said to extend deep oil output cuts into April
Saudi Arabia and other OPEC nations have come under pressure from U.S. President Donald Trump, who urged OPEC in a tweet to “please relax and take it easy.”

Saudi Arabia will supply its clients with significantly less oil than they requested in April, extending deeper-than-agreed oil production cuts into a second month, a Saudi official familiar with the policy said.

The move is the latest sign Riyadh is determined to regain control of the oil market as prices remain well below the level that many OPEC members need to cover their government spending.

Saudi Arabia plans to produce well below 10 million barrels a day in April, a similar pace to March, when it cut output by 500,000 barrels a day from February, the same official said, asking not to be named discussing internal deliberations. Last year, Riyadh agreed with OPEC and its partners, including Russia, to cap production at 10.31 million barrels a day.

With Venezuela output falling further due to US sanctions and power blackouts, oil refiners put in requests - or nominations in industry jargon - for Saudi crude of more than 7.6 million barrels a day for April, the person said. However, the kingdom will supply overseas customers with less than 7 million barrels a day, 635,000 barrels less than refiners asked for however, they said.

The second consecutive month of deep production cuts shows the world’s largest oil exporter is determined to re-balance the market more quickly even though events in Venezuela have left some refiners short of crude. The crisis has worsened a deficit of so-called heavy-sour crude that many refiners use to make diesel.

Saudi Aramco, the state-owned oil monopoly, decided its monthly nominations over the weekend and told clients early on Monday their individual allocations. Although not identical, Saudi crude can be used as an alternative to Venezuelan crude and is also a good alternative for Iranian oil, also in short supply due to U.S. sanctions.

Brent crude, the global oil benchmark, has risen above $65 a barrel, recovering from a sell-off through November and December which saw it changing hands for as little as $50 a barrel.

The Saudi cuts come after Energy Minister Khalid Al-Falih told reporters in late February that U.S. crude inventories were “brimming” and reducing the glut was the main objective of the OPEC+ coalition. Since Al-Falih spoke, U.S. inventories have increased further as American oil production sets records.

Saudi Arabia and other OPEC nations have come under pressure from U.S. President Donald Trump, who urged OPEC in a tweet to “please relax and take it easy.”

Al-Falih offered a direct response in February: “We are taking it easy, 25 countries are taking a very slow and measured approach.”

So far, Saudi Arabia has focused its exports cuts in the U.S. market, where weekly data on inventories makes supply changes quickly visible to the wider market. U.S. imports of Saudi crude have fallen to a four-week average of just 513,000 barrels a day, according to the most recent government data, the lowest level since 1986. Last year, the kingdom exported an average of 815,000 barrels a day to the U.S.

The extension of the deeper-than-agreed output cuts in April signals that Saudi Arabia is unlikely to press for any change at the next full OPEC+ meeting, scheduled for mid-April in Vienna.

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