Saudis May cut Production Below OPEC Target

Saturday, October 10, 2009

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.

Is this news bullish for oil? I don`t think so. Sentiment is so bad, present demand is so weak that prices may drift lower to a selling climax. Then we will have an Oil Bottom.

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