Top oil exporter Saudi Arabia on Monday told core customers in Asia and the United States it would cut supplies next month, making good on Opec's pledge to implement its first formal output cut since 2004.
Following the reductions, Riyadh's oil output will drop to 8.72 million barrels per day. That would be nearly 800,000 bpd down from April, or the equivalent of a day's pumping from Opec's smallest member Qatar.
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. The kingdom also deepened supply cuts to global oil majors, traders said.
"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." The Organisation of the Petroleum Exporting Countries, source of more than a third of the world's oil, last week said it would cut output by a deeper than expected 1.2 million bpd. But to side-step 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, sources told Reuters on October 9.
At that time, Saudi Arabia told Asian refiners it would keep crude supplies in November steady at 100 percent of 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.
But over the weekend, Asian refiners were told 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 percent.
Taiwan's Chinese Petroleum Corp (CPC) received a cut of about 7 percent, 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." Saudi Arabia also deepened a supply cut to international oil majors in November, traders said.
The kingdom cut another 5 percent from November supplies to majors, adding to a reduction of 5 percent it made earlier in October, they said. A trader at one major said the latest cuts were "marginal," without giving a specific figure. Another firm with refineries world-wide said Saudi Arabia had not notified it of any cutback on top of that signalled early this month.
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 scepticism Opec would enforce its output agreement and prices remained below $60 a barrel for US crude on Monday, near to this year's low of $56.55 touched on Friday. But many analysts have said Opec means business and Opec has said it will cut production further if necessary when it next meets in December.