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Crude oil producers within the Gulf Cooperation Council (GCC) will honor the January term contracts for crude oil supplies to Asia, and would implement OPEC cuts on extra deliveries when necessary, S&P Global Platts reported on Monday, citing sources at Arab crude producers and Asian customers.
Most of the state oil companies in the GCC – which includes Saudi Arabia, the United Arab Emirates, Bahrain, Oman, Qatar, and Kuwait – sell most of their crude oil on a term basis, but additional volumes are usually sold on a case-by-case basis to refiners.
Sources at major oil producers in the GCC told Platts that the majority of the term contracts had already been renewed for next year. Producers do not believe that the term supply commitments will be affected by production cuts.
Furthermore, GCC producers have been bracing for a possible OPEC cut for months, and no major impact on their key term buyers is expected, a source at a GCC oil firm told Platts.
On the customer side, Asian refiners are pretty certain their January supplies will not be affected by last week’s OPEC decision to reduce the cartel’s supply by around 1.2 million bpd from current levels to 32.5 million bpd, effective in January.
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“We have been told that our term allocation for January will be executed as contracted,” a source at an Asian refiner told Platts.
As part of the OPEC deal, the GCC members that are also OPEC members pledged to cut (from “reference figures”) as follows: Saudi Arabia – 486,000 bpd, the UAE – 139,000 bpd, Kuwait – 131,000 bpd, and Qatar – 30,000 bpd.
Of course, the deal, apart from being contingent on non-OPEC producers – including Russia - cutting around another 600,000 bpd, has yet to materialize with OPEC’s poor track record of sticking to commitments.
A week before the crucial Vienna meeting, Saudi Arabia, OPEC’s de facto leader and largest producer, was said to be bumping up its January exports to Asia to not lose any market share, at least not in January.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.