KUWAIT (Reuters) – Saudi Arabia’s oil minister said on Sunday the kingdom had slashed output by 800,000 barrels per day in March due to oversupply, sending the strongest signal yet that OPEC will not act to quell soaring prices.
Consumers have urged the exporters’ group to pump more crude to put a cap on oil, which surged to more than $127 a barrel this month, its highest level in 2 1/2 years amid unrest in North Africa and the Middle East.
Oil Ministers from Kuwait and the United Arab Emirates echoed Saudi Arabia’s Ali al-Naimi’s concerns about oversupply and said rocketing crude prices were out of the hands of OPEC, which next meets in June.
“The market is overbalanced … Our production in February was 9.125 million barrels per day (bpd), in March it was 8.292 million bpd. In April we don’t know yet, probably a little higher than March. The reason I gave you these numbers is to show you that the market is oversupplied,” Naimi told reporters.
Two Saudi-based industry sources told Reuters last week the kingdom had cut output due to poor demand, prompting selling by traders who saw it as a sign of a well-supplied market.
But crude rebounded later in the week on optimism about the state of the U.S. economy.
Naimi’s words are the clearest indication yet that OPEC is unconvinced there is a need for more oil despite the civil war that has slashed Libyan output and expectations Japanese demand will rise as it scrambles to rebuild its earthquake-shattered electricity grid.
“These statements underscore the breadth of the security premium currently in (oil) prices. Overall supplies are sufficient,” said John Kilduff of energy hedge fund Again Capital. “As we’ve seen in the past, however, a well-supplied market is not always a barrier to very high prices.”
IEA: MARKET TIGHTENING
Naimi, who has previously spoken of $70 to $80 a barrel as a desirable range for crude, declined to comment on the price.
Oil prices fell early last week on concern that demand may be eroding under pressure from high prices, but rebounded on Friday following encouraging U.S. economic data.
Nobuo Tanaka, the head of the International Energy Agency, which represents oil importers’ interests, stopped short of saying OPEC needed to boost output, but suggested the group be more flexible in its thinking about supply.
“The market is getting tighter and if it is tighter the price may go up, which may have a negative impact to economic growth,” Tanaka told reporters.
OPEC last formally discussed output policy in December and is not scheduled to do so again until June. Members have ruled out holding an emergency meeting before then.
Unrest in North Africa and the Middle East has left Saudi Arabia and other Gulf nations nervous of political instability and of a sharp fall in oil prices that could lead to a fiscal crunch while populations are restive.
The kingdom promised nearly $93 billion in handouts to its citizens in the wake of the wave of unrest that swept the Arab world this spring, making a sharp fall in oil prices a major risk for its budget.
Saudi Arabia and some other OPEC members unilaterally boosted oil production after the March uprising against Libyan leader Muammar Gaddafi shut down the bulk of the North African OPEC member’s oil industry but weak demand for the additional production appears to have prompted the reduction in output.
Naimi said Saudi Arabia had sold 2 million barrels of a special blend of crude that tried to replicate the high quality Libyan barrels lost. Demand for the blend has been tepid, according to oil traders.
Kuwait may also have reduced output from the 2.42 million bpd analysts and oil traders estimated it pumped in March.
The Gulf state’s Oil Minister Sheikh Ahmad al-Abdullah al-Sabah told reporters Kuwait was currently producing 2.2 million bpd but did not say whether output had been reduced.