News

Top exporter Saudi Arabia plans to cut oil output by up to 300,000 barrels per day below its agreed OPEC target – a pro-active step to prop up a collapsing market, industry sources said on Sunday.

OPEC's most influential member has lowered supply this month to 8 million bpd, meeting its target under OPEC's pact to reduce overall production by a record amount from Jan. 1.

But strict Saudi discipline has failed to boost oil prices – which at close to $40 are far from the $75 a barrel named by Saudi King Abdullah as a fair price. So Riyadh is prepared, from February, to go beyond what is required by OPEC, the sources said.

“We've been told Saudi Arabia will cut to about 7.7 million in February,” said a senior oil executive. “They want to prevent a huge stock build up and a further decline in the oil price.”

The kingdom had increased production unilaterally to about 9.7 million bpd in August last year to calm an oil market that had shot to a record of nearly $150 in July.

But by February, it will have reduced its supply to world markets by a fifth as recession steadily erodes demand for fuel. Refiners in Asia were expecting to receive the lowest Saudi crude shipments in five years and buyers in Europe and the United States also were set for substantial cuts.

Some trade sources have told Reuters the reduced volumes were as much as they needed.

Saudi officials could not be reached for comment.

Sources said it was too soon to tell whether Saudi Arabia was again anticipating wider action by the Organization of the Petroleum Exporting Countries or whether it was acting alone.

OPEC, which pumps nearly a third of the world's oil, is scheduled to meet again in March.

The decline in demand because of a slower world economy is likely to be exaggerated by then – at the start of the second quarter – when consumption typically weakens after the northern hemisphere winter.

Saudi policy-makers hope prompt action will lessen the impact of a big increase in inventories as energy use contracts.

“They clearly think there's an issue with demand, so they're doing something about it,” said an oil industry source.

The kingdom is shouldering by far the biggest part of the OPEC supply curbs.

OPEC agreed last month to cut output by a record of 2.2 million bpd, taking total curbs since September to 4.2 million bpd, roughly equivalent to 5 per cent of global oil supply.

Even before the 12-member exporter group announced its latest supply cuts on Dec. 17 in Algeria, Saudi Arabia had informed its customers they would receive significantly less crude in January.

Saudi Arabia and other producers typically tell customers several weeks in advance how much crude they can expect to receive.

Other OPEC producers – Iran, the United Arab Emirates, Kuwait, Angola, Algeria and Libya – have also cut supply.