Saudis to make deepest cut to crude supply amid strong demand

Saudi Aramco plans to make “the deepest customer allocation cuts in its history” in oil supplies in November to help reduce global inventories and balance the market.

State-run Saudi Arabian Oil Co., known as Aramco, will make an “unprecedented” cut of 560,000 barrels a day in its allocations to customers next month, the Saudi energy ministry said in a statement. Aramco plans to supply 7.15 million barrels a day “despite very strong demand” that exceeds 7.7 million barrels a day, it said.

“Saudi Arabia is once again demonstrating extraordinary leadership in its commitment to re-balancing the market, as we approach the upcoming key meeting of November 30 in Vienna, by restraining not only the top-line of production volume, but even more importantly the bottom line of exports, which are what ultimately shape global inventories and market balances,” the ministry said. “The kingdom expects all other participants in the effort to follow suit and to maintain the high levels of overall conformity achieved in August going forward.”

Saudi Arabia, the world’s top crude exporter, is leading the Organization of Petroleum Exporting Countries and other producers including Russia in paring output under a deal that helped propel oil into a bull market in September. Lower compliance with the curbs promised by some nations combined with rising production in OPEC members Libya and Nigeria — both exempt from reducing output due to their internal strife — have added pressure on Saudi Arabia to make deeper cuts of its own.

Brent, the global benchmark, erased earlier declines to trade marginally higher at $55.62 a barrel at 3:47 pm in London after the news of the Saudi oil allocations cuts.

The decrease in allocations for November “constitutes a full 290,000 barrels a day reduction over and above the 486,000 barrels a day” that Saudi Arabia pledged to cut as part of its commitment to the global output accord, the ministry said. This adds up “to a massive total of almost 800,000 barrels a day” in cuts, it said.

Saudi Arabia scaled back exports in September to less than 6.7 million barrels a day, “despite high customer demand and the partial reduction of domestic summer crude burning requirements,” the ministry said.

Report courtesy Bloomberg