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Riyadh: Output cut due to low demand, not bid to prop up prices

A fuel storage tank at the Saudi Aramco Shell oil refinery in Jubail, Saudi Arabia, in this photo taken Tuesday, June 1, 2004. (AP Photo/Hasan Jamali)

Saudi Arabia, the world’s largest crude exporter, said it cut production last month to adjust to decreased demand rather than to prop up oil prices.

Refiners in Asia may face the greatest quarterly losses from sales of fuel oil in five years as excess supply causes the spread from regional benchmarks to widen.

The following is a weekly summary of Arab Gulf crude and product market news, as well as forthcoming events:

Saudi Arabia, the biggest producer in OPEC, reduced output of crude oil in December because customers asked for less, Ibrahim al-Muhanna, an adviser to Oil Minister Ali al-Naimi, said on Jan. 14.

The kingdom denied what it said were suggestions that it cut oil production last month to push prices higher and accused unidentified media of misinterpreting the kingdom’s response to weaker demand.

It was “categorically wrong” to say the decrease in Saudi output last month was a “deliberate attempt” to boost oil prices, Muhanna said in an emailed statement.

Saudi Arabia pared production by 4.9 percent in December to 9.025 million barrels a day as booming U.S. oil output and a recovery in Iraqi crude shipments threatened to oversupply the market, a Gulf official with knowledge of the policy said on Jan. 10.

The cut of 465,000 barrels from November was the largest monthly drop since November 2008, when the Organization of Petroleum Exporting Countries pared supplies amid a global recession.

A.P. Moeller-Maersk A/S’s oil unit sold two 600,000 barrel cargoes of Qatar’s Al-Shaheen crude loading in March at a premium of $1.50 to $1.75 a barrel more than benchmark Dubai, six people who participate in the market said on Jan. 15.

In regional trading, the Oman and Dubai grades both declined $1.13 a barrel, or 1.05 percent, in trading through the week ended Jan. 18. Oman crude futures closed at $106.52 a barrel on Jan. 18, according to data compiled by Bloomberg. Dubai fell to $106.39 a barrel.

Refiners in Asia are set to post the biggest seasonal losses from producing fuel oil in five years as rising supplies undermine a rebound in Chinese demand. Cargoes of the ship and power-station fuel, a refining residue that producers typically sell at a loss after making gasoline and diesel, traded at more than $7 a barrel below Dubai crude in Singapore last week.

That gap, or crack spread, will average at that level in the three months ending March, according to the median of eight estimates in a Bloomberg survey. It would be the widest spread for any first quarter since 2008, when it was $14.93, data compiled by Bloomberg show. Shipments scheduled for Asia this month are 42 percent higher than in December, data compiled by Bloomberg show, underlining a slide in consumption in Europe.

Qatar International Petroleum Marketing Co., known as Tasweeq, sold deodorized field and low-sulfur condensate cargoes for loading in March from Ras Laffan, two traders said on Jan. 18.

The company sold an unspecified number of 500,000-barrel shipments, the traders added.

 
A version of this article appeared in the print edition of The Daily Star on January 22, 2013, on page 5.

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