Saudis to Pare Oil Output Again
Amid Market Uncertainty, OPEC Leader to Remove 158,000 Barrels a Day
By BHUSHAN BAHREE
Saudi Arabia, which already has aggressively shaved its oil output in a battle to shore up prices, is tightening its spigots further this week.
A senior Saudi oil official said yesterday the kingdom had advised its customers of the impending 158,000 barrel-a-day cut, which takes effect Feb. 1. The reductions, part of a broader campaign by the Organization of Petroleum Exporting Countries, are intended to shrink inventories of oil that had ballooned last year as demand growth for petroleum faltered.
"After these cuts, our oil production will have declined by about one million barrels a day since last summer," said the senior Saudi oil official.
Word of the Saudi move to further trim output comes as traders are trying to parse whether OPEC is going to cut its production in line with its announced plans. OPEC's members often produce more than they have pledged. Saudi Arabia, the world's largest oil exporter, is the oil cartel's de facto leader and closely watched by markets.
Saudi Arabia's one-million-barrel reduction -- made over a roughly six-month period -- is nearly double the total cuts it agreed to make under two output reductions hammered out by OPEC at meetings in Doha, Qatar, in October and in Abuja, Nigeria, in December. The Saudi official couldn't be precise about Saudi output after the reduction this week but said that it would be "around 8.5 million barrels a day."
The 10 members of OPEC that committed to reduce their output were producing about 27.5 million barrels a day in September. The agreed- upon cuts, if fully implemented, would bring the group's output down to 25.8 million barrels a day in a global oil market of about 85 million barrels a day.
OPEC officials, including some senior Saudis, have been sending some conflicting signals about their plans. Yesterday, U.S. benchmark crude declined $1.41 to $54.01 a barrel after the outgoing Saudi ambassador to the U.S., Prince Turki al Faisal, said current oil- price levels are "adequate to meet the requirements of producing and consuming countries." He also dismissed speculation that Saudi Arabia was trying to drive down oil prices to constrain export revenues for political rival Iran.
The ambassador sent crude prices down in October when he said the kingdom's aim was to bring oil prices down to "reasonable levels." This was shortly before OPEC ministers met and announced a 1.2 million barrel-a-day cut.
Saudi oil officials who manage the kingdom's production say more cuts are on the way. The move to trim further comes as the cartel seems to be having some success in shoring up prices, which fell below $50 a barrel amid signs of sluggish oil-demand growth and rising inventories.
Ali Naimi, Saudi Arabia's oil minister and the cartel's de facto leader, has been careful not to pinpoint a specific target price for crude. Analysts said the OPEC cuts are meant to shore up crude well above $50 a barrel for the benchmark U.S. oil type by further eating away at inventories.
"They are defending prices from falling below $55 [a barrel] quite aggressively," said Roger Diwan, an analyst at PFC Energy, a Washington industry consultancy.
Mr. Diwan noted Saudi Arabia had opened its oil taps wide when prices were surging, in line with its long-standing policy of tempering markets. Saudi officials had expressed concern when prices soared to record highs last year, for fear that the price surge might trigger a market-killing economic downturn or encourage customers to seek substitute fuels. "The Saudis, they don't talk a lot, so look at what they do, and that will give you the whole story," Mr. Diwan said.
Saudi Arabia cranked its pumps to near-maximum in 2005, when prices leaped because of strong demand, tight supplies and hurricane damage to oil-production facilities in the Gulf of Mexico. Late last spring, the kingdom began trimming its output as oil tanks in consumer countries filled up and Saudi Arabia couldn't find buyers for all its oil.
During the summer, buyers demanded more oil, and the Saudis provided it as world oil prices peaked at more than $77 a barrel in July. Then prices started tumbling in the fall, prompting OPEC to cut output twice.
This month, as oil prices fell close to $50 a barrel in New York, Mr. Naimi brushed aside calls by some members such as Venezuela and Iran for an emergency OPEC meeting, presumably to consider deeper output cuts than already agreed upon. A Saudi official said the kingdom turned down a meeting because oil-industry data showed the fundamentals of the oil market were moving toward balance and that no cuts beyond those already planned were needed for the months ahead.
Since then, prices have firmed above $50.
---- Ian Talley contributed to this article.