Oil consultant says Saudi Arabia considering 1m b/d export cut

A veteran oil consultant has said Saudi Arabia is weighing a unilateral 1m barrel a day cut to exports as the recovery in output from Opec members not bound by the group’s supply deal risks derailing attempts to balance the oil market.

Bill Farren-Price, a long-term Opec follower and consultant at Petroleum Policy Intelligence, said in a note to clients late last week that sources inside and outside the oil cartel had told him a 1m b/d export cut by Saudi “was on the table” among other options, though no decision had yet been made.

“First, Saudi Arabia is considering cutting its exports unilaterally by up to a further 1m b/d, which would offset the rise in Libyan and Nigerian supplies,” Mr Farren-Price wrote. “No final decision has been made.

“The possible Saudi cut is a response to the second measure under discussion – Russia’s demand that supply caps be introduced for Libya and Nigeria, whose growth during the first half of the year has undermined the impact of the cuts.”

Saudi Arabia has led Opec’s efforts – in alliance with other big producers like Russia – to remove 1.8m b/d from the oil market as they attempt to draw down bloated inventories and boost the price of crude.

Since the cuts were first enacted on January 1, however, Brent crude has slipped by about 13 per cent, hampered by a recovery in supplies from Nigeria and Libya – two Opec members who were exempt from the cuts due to long-running disruptions in their countries – and a rebound in the US shale industry.

Mr Farren-Price said “an adjusted strategy” could emerge at the Joint Ministerial Monitoring Committee meeting in Russia on July 24, where cartel members will review the cuts so far.

He said that while no decision has been made, Saudi was discussing exports rather than production – the usual measure Opec agreements are based on. The group has faced criticism for not cutting exports as quickly as production, with some members drawing oil out of domestic storage, keeping overseas shipments high.

“It will represent an effective response to market demands that Opec focus on exports – which have remained robust in recent months – and not just production, which does not take account of producer stock changes,” Mr Farren-Price said.

“Such a move would critically demonstrate Saudi Arabia’s commitment to the deal and cooperation with Russia, its determination to follow through and make the cuts work; and implies the kingdom is willing to shoulder additional cuts further down the line if needed.”

Some Opec members have said no more needs to be done until the next official ministerial meeting in November, however. Kuwait’s oil minister told Reuters on Tuesday that he believed the cuts were working and would drain the surplus by early next year.

A third option under consideration, Mr Farren-Price said, was producers agreeing to maintain stricter compliance with existing production targets as many countries have not yet cut the full amount agreed. On Monday Ecuador said it was producing above target due to the economic situation in the country.

On Tuesday Brent crude oil was up almost 2 per cent to $49.27 a barrel, the highest in almost two weeks, while US benchmark West Texas Intermediate was up 1.8 per cent at $46.82 a barrel.