SA to cut 30-50%?? Pulled this from the Energy Prospectus Group on Yahoo. Wow.
-Mike
furl.net
Saudis Make Surprisingly Deep Cut In Oil Majors' Supply by Shai Oster Tue, Jan 11, 2005 21:42 GMT
LONDON - World oil heavyweight Saudi Arabia made unexpectedly big cuts in February crude oil supplied to major international oil companies, a move traders said may lead to stronger prices.
The cuts, communicated this week to buyers, follow smaller cuts made in January and an OPEC agreement in December to roll back excess production. Their depth surprised some in the market.
"There's a feeling of shock and amazement at the magnitude of some of the cuts," said one source at a major European oil company with a worldwide refining system.
"I don't think anybody predicted this," another trading source said. "The Saudis have been telling us one thing and then turn around and do this. It's totally inflexible."
Saudi Arabian Oil Co., or Saudi Aramco, signs long-term contracts with companies covering set amounts of oil. Each month, they adjust the percentage of the oil that will actually be allocated.
The Saudis signaled their intent to deepen cuts when they issued higher than expected official selling prices last week on the expectation tighter supplies would justify them.
Europe-based trading sources at major oil companies reported Tuesday cuts in the amount of crude allocations in the vicinity of 30%-50%. One oil major saw its so-called free on board allocations for February cut to below 60% of contract volumes, a person in the U.S. with that company said.
At the same time, the Saudis left unchanged or only shaved off a few percentage points for term crude customers in Asia, Europe and the U.S. whose contracts are on a delivered basis for fixed destinations.
The cuts in part make a virtue of necessity, as some buyers in December were turning away offers of extra crude, because they didn't have any more room in their systems. The glut drove the prices of heavier, higher-sulfur crudes down to record discounts against the valued light, sweet crudes tracked by global benchmarks.
The cuts for February will take the excess crude out of the market, a U.S. buyer of Saudi crude said.
"The market is now in balance, so I do not see the need for further cuts from Saudis," he said. "They made the cuts they needed to to comply" with their lower Organization of Petroleum Exporting Countries quota.
Last week, Saudi Oil Minister Ali Naimi confirmed the kingdom had cut production by 500,000 barrels a day to 9 million barrels a day.
The cuts already have helped oil prices rebound. February light, sweet crude futures on the New York Mercantile Exchange topped $47 a barrel Monday for the first time in about six weeks.
The impact of the Saudi restraint has been magnified by a spate of outages in Norway, Nigeria, Iraq and the Gulf of Mexico, which together have taken more than 1 million barrels a day in oil production from the market. While some of the production outages are temporary, others are expected to last longer
"It's odd that they're making such dramatic cutbacks when prices are so high," another trading source at a major European refiner said.
Aramco can offer extra cargoes after nominations have been set.
OPEC meets Jan. 30 in Vienna to review its output policy. Some in the group have floated the idea of further cuts in the group's target to keep prices above $40 in the second quarter, which falls between the high-demand winter heating season and summer driving season. |
