Tags: saudi arabia | oil | crude | export

Saudi Oil Supply Decline Unlikely to Herald New Export Policy

Thursday, 23 October 2014 04:13 PM

A drop in Saudi Arabian oil supply last month doesn’t necessarily signal that the biggest producer in OPEC is cutting exports to bolster prices.

Brent crude jumped after a person familiar with the country’s oil policies said the amount it supplied to markets fell in September by 328,000 barrels a day. The drop came after domestic demand increased to the most in at least 12 years.

The market’s reaction underscores the focus on the Organization of Petroleum Exporting Countries before the group’s meeting next month after a global glut of oil drove crude futures down into a bear market. OPEC increased output to the highest in almost three years and the Saudis pumped 100,000 barrels a day more than in August.

“This is not yet a signal that Saudi Arabia has taken a step forward in markedly reducing oil supply with an objective to shore up prices,” Harry Tchilinguirian, BNP Paribas SA’s London-based head of commodity markets strategy, said in an electronic message. “Saudi Arabia reduced supply to the market amid stable production because of increased domestic demand by new refinery capacity.”

Brent crude, which had been little changed before the supply report, jumped as much as 2.9 percent and settled at $86.83 a barrel. West Texas Intermediate gained 1.9 percent to $82.09, having earlier risen 2.3 percent.

Market Reaction

“You have to ask yourself: Was that bullish because there is less crude on the market or was that bearish because people won’t buy all the Saudi oil that was produced?” Michael Hiley, head of energy OTC at LPS Partners Inc. in New York, said. “The market reacted to the headline as though there is less crude oil for the world to buy.”

Saudi Arabia supplied 9.36 million barrels a day to markets last month, according to the person familiar with Saudi policy, who spoke yesterday and asked not to be identified, citing policy. The figure doesn’t include the amount of oil that was stored. Saudi output in September was 9.7 million barrels a day, up from almost 9.6 million in August, the person familiar with Saudi policy said. That’s the same as OPEC reported in its most recent market assessment.

The supply reduction reflects a weak market rather than a new output policy, according to Julian Lee, an oil strategist for Bloomberg First Word who has worked in the industry for 25 years. It indicates the country put unsold barrels into storage, he said.

Saudi Stance

Saudi Arabian officials have yet to say publicly how the country will respond to a plunge in crude since June. Supplies from the U.S. are the highest in decades as drillers tap reserves in shale-rock formations.

Saudi refiners processed 2.17 million barrels a day of crude in August, the highest amount in the Joint Organisations Data Initiative records going back to 2002. The new Satorp refinery, a joint venture between Total SA and state-run Saudi Aramco, reached full capacity of 400,000 barrels a day.

The supply cut “does not necessarily mean that their export policy has changed at all,” Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC, said. “The market response has been positive, but the more light you shed on the story, the less impact it should have.”

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Thursday, 23 October 2014 04:13 PM
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