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Wednesday, October 25, 2006

Saudi Arabia Informs US & Asia of Supply Cut

By Yaser Anwar, CSC of Stock Market Beat

Saudi Arabia on Monday told core customers in Asia and the US it would cut supplies next month, making good on OPEC's pledge to implement its first formal output cut since 04.

Asian refiners said they had been notified of supply reductions that could total around two thirds of Saudi Arabia's production cut under an OPEC deal reached last week.

"Saudi Arabia has already informed its customers in Asia and North America of its plan to cut 380,000 bpd from the beginning of November," a senior OPEC delegate said.

"Other OPEC producers will cut their designated volumes from their actual production regardless of how it is being estimated."

OPEC last week said it would reduce production by a deeper than expected 1.2 million bpd. To sidestep the issue of quotas and market share, OPEC published only a list of individual cutbacks, while leaving official output quotas unchanged.

Even before the meeting, Saudi Arabia had told majors with global refining systems it was reducing its contracted supply in November by around five percent, industry sources told Reuters on Oct. 9.

At that time, Saudi Arabia told Asian refiners it would keep crude supplies in November steady at full contract volume, trade sources said. Customers usually find out how much oil they will receive before the middle of the month preceding their scheduled shipments.

Over the weekend, Asian refiners received the news they would be receiving up to 8 percent less, or around 280,000 bpd, oil in November.

"Our company received notification from Saudi Arabia at the weekend," one source at a Japanese refiner said.

Unipec, the trading arm of top Asian refiner Sinopec, which is Saudi Arabia's largest independent customer in Asia, will see a 7-8 percent cut to its supplies, a trade source said. Unipec lifts about 90 percent of China's 500,000 bpd of Saudi imports.

Sources with two South Korean refiners that buy Saudi crude also confirmed cuts of 5-7%. Taiwan's Chinese Petroleum Corp (CPC) received a cut of about 7%, while India's Bharat Petroleum Corp. Ltd. (BPCL) got a similar reduction.

One refiner in Europe was also receiving a token cut, a source said, but two others said they had not been notified of any change. "It's a notional cut, but the message is clear," the source said of the token reduction. "They want to signal they're following the OPEC agreement."

There was no word yet on cuts from other OPEC members such as Kuwait, United Arab Emirates and Iran, which are also to curb exports, but not as deeply as Saudi Arabia, which shoulders the largest share of OPEC production.

Oil traders have voiced skepticism OPEC would enforce its output agreement and prices remained below $60 a barrel for U.S. crude on Monday, near to this year's low of $56.55 touched on Friday.

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