Saudi Arabia has announced reductions in crude oil volumes to be supplied to at least nine clients in Asia and Europe following its decision to add another 1 million bpd to its OPEC+ production cut quota to prop up prices.
Bloomberg reports that the Kingdom will slash supplies to some refiners by between 20 and 30 percent, according to unnamed sources from the buyer companies. The cuts are made for shipments under long-term contracts and concern Aramco's heavier grades.
Some smaller European buyers, the sources said, may not get any Saudi cargos next month at all.
Saudi Arabia surprised the world last week when it announced plans to cut its current production rate by another 1 million bpd on top of the amount it agreed to cut under the OPEC+ agreement. Saudi Arabia also hiked crude prices for buyers in Asia and the United States.
The announcement came after OPEC+ agreed to increase its February production by just 75,000 bpd, versus an initially proposed 500,000 bpd. For March, the extended cartel agreed to lift output levels by another 120,000 bpd.
Yet with Saudi Arabia saying it would cut 1 million bpd, the modest addition to other members' production failed to have any negative impact on oil prices, which have been on a tear since the Saudi announcement. Effectively, thanks to the additional cut, the cartel would be producing less than it did for the second half of 2020: February's total production cuts will be 8.125 million bpd, and March's will total 8.05 million bpd. That's compared with 7.7 million in production cuts for the second half of 2020.
While Saudi Arabia cuts additional production volumes, Russia will ramp up its crude output from 9.119 million bpd in January to 9.184 million bpd in February. For March, the country's production quota will increase further to 9.249 million bpd.
By Irina Slav for Oilprice.com
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Comments
The Saudis must have calculated that if not for their decision, OPEC+ could have failed to reach an agreement sending Brent oil price crashing to $45 a barrel. Instead, the OPEC+ agreement sent oil prices to $56.17 now.
So by exporting, for example, 6 mbd at $56 gives Saudi Arabia a daily revenue of $337 million compared to $315 from exporting 7 mbd at $45.
Well played Saudi Arabia.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London