Saudi firm cuts supply to Asia

Saudi Aramco, the world's largest state oil company, will make the biggest cut in exports to Asia in two years as Opec producers implement a second output cut in three months to stem a 12 per cent slide in prices this year.

Saudi Aramco informed South Korean refiners that supplies will be cut by between 11 per cent and 14 per cent in February, said refinery officials, who asked not to be identified because of confidentiality agreements with the company. Refiners in Japan will receive between 10 per cent and 12 per cent below contracted volumes, the officials said.

The Organisation of Petroleum Exporting Countries, which pumps 40 per cent of the world's oil, has agreed to two production cuts totalling 1.7 million barrels a day to halt the slide in prices and prevent a glut.

Crude oil in New York traded below $53 a barrel today, down 16 per cent from a year ago, as warmer weather cut demand for heating oil in the US

"The first step in the cycle of recovery must be crude production cuts,'' said Anthony Nunan, assistant general manager of international petroleum business at Mitsubishi Corp in Tokyo.

"Saudi has been saying inventory is as or more important than price in their decision'' to cut production. The president of OPEC urged member states today to comply with pledged production cuts to reverse a slide in oil prices.

"$53 a barrel for WTI is unacceptable,'' Mohamed al-Hamli, who is also the oil minister of the United Arab Emirates, said in a phone interview from Abu Dhabi. "It's very difficult to have 100 per cent compliance, but we need to make the cuts that we have agreed.''

US distillate supplies, including heating oil and diesel, surged 5.4 million barrels to 141 million last week, the biggest gain since January 2004, the Energy Department said yesterday.

Gasoline supplies rose 3.76 million barrels to 213.3 million.

Total demand, based on deliveries from refineries, fell 4 per cent as mild weather in the Northeast sapped heating oil use.

"The report was a big wake-up call,'' Nunan said.

US crude oil stockpiles are 7.1 per cent higher than the five-year average at 314.7 million barrels. They fell 4.99 million barrels last week the department said.

The Dhahran, Saudi Arabia-based oil producer will mainly reduce Arab heavy crude exports to Asia, the Asian refinery officials said by telephone today. Saudi Aramco's February supplies to Asia will be lower than the 8 percent cut made in January, and is the biggest reduction since April 2004.

Saudi Aramco will cut exports to refiners in China by as much as 10 percent in February and to Taiwanese customers by between 10 percent and 12 percent below contracted volumes, said refinery officials from both countries.

In Europe, one refiner was notified yesterday that its shipments will decline by 5 percent to 7 percent from this month's level, and three customers said they were told to expect no change in deliveries, according to officials at four companies contacted by Bloomberg News.

Saudi Arabia agreed to lower production by 158,000 barrels a day as of February 1 under OPEC's second agreement on December 14.