Asia is responsible for taking most of Iranian oil
Saudi
Arabia Slashed Oil Output in December
WSJ,
10
January, 2013
By
SUMMER SAID and SARAH KENT
DUBAI—Saudi
Arabia cut its oil production by close to 5% in December in response
to lower demand chiefly from Asian customers, the kingdom's deepest
production cut in almost three years which comes amid expectations
for lower demand for OPEC crude this year.
The
sharp cut in production sent the price of European benchmark Brent
crude to its highest level since October and U.S. benchmark West
Texas Intermediate crude hit a near four-month high.
Saudi
Arabia is the world's top oil exporter and has played an important
role in the last two years as one of the few countries with enough
spare production capacity to respond to market changes. It
substantially lifted production to fill supply gaps caused by the
civil war in Libya in 2011 and kept it high as the West imposed tough
oil sanctions against Iran last year.
As
demand for crude from the Organization of the Petroleum Exporting
Countries falls this year, the Saudi cut shows that the kingdom,
"still wants to have, and does have, the role as the swing
producer in the market," said Thina Saltvedt, a senior oil
market analyst at Nordea Bank Norge.
Saudi
oil production fell to 9.025 million barrels a day in December
compared with 9.49 million barrels a day a month earlier, according
to a person with direct knowledge of Saudi oil supply.
That
marks the sharpest month-on-month cut in Saudi oil production since
January 2009 when the country responded to the collapse in energy
demand due to the global recession, according to data on the website
of the Joint Organizations Data Initiative, a collaboration between
oil producers and consumers aimed at increasing energy market
transparency.
Still,
the cut in output doesn't reflect a shift in Saudi Arabia's approach
to supplying the oil market, but reduced demand for crude from the
kingdom's customers, particularly in Asia, said the person.
Asia's
demand for oil is especially significant as consumption in emerging
markets has been the main driver of oil demand in recent years as
Europe and the U.S. struggle to turn their economies around.
Saudi
Arabia has repeatedly stated its commitment to meet all requests for
oil from customers in the last year, but analysts said the sharp cut
in production was to be expected as demand remains sluggish and
production increases elsewhere—notably in North America and
Iraq—reduce demand for Saudi barrels.
"All
of the numbers and the majority of analysts are all suggesting that
as we go forward in the year the market is going to be significantly
oversupplied," said Paul Stevens, senior research fellow in the
energy, environment and development program at London-based
independent policy institute Chatham House. "There is pressure
for OPEC to anticipate this and cut back and I suspect Saudi Arabia
has been quietly doing this in order to reduce oversupply."
Recent
production data suggest other OPEC oil producers have also cut back.
A survey of industry sources and analysts conducted by The Wall
Street Journal last week found output from OPEC members fell to its
lowest level since October 2011 in December.
"Overall
I think OPEC will keep things fairly steady after this recent
reduction," said Simon Wardell, research manager in the energy
practice at IHS Global Insight. "They've probably reduced output
as much as I think they need to at this stage."
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