TOKYO/DUBAI (Reuters) – The UAE joined Saudi Arabia in deepening oil supply curbs after OPEC’s biggest ever output cut last week, telling refiners on Thursday it would tighten shipping limits on exports of its main grades.
While top exporter Saudi Arabia effectively started implementing OPEC’s December 17 cuts even before the cartel had agreed them, other members had yet to follow up with clear action, raising questions about compliance.
Oil prices have deepened their slide since July to more than $110 a barrel on speculation that OPEC is doing too little or too late to offset the slump in global demand.
In a statement to customers and media including Reuters, the Abu Dhabi National Oil Co (ADNOC) said customers who buy its Murban and Upper Zakum grades would no longer have the option to load an additional 5 percent above normal volumes on each cargo, a standard industry practice known as “operational tolerance.”
“Murban and Upper Zakum cargoes will be treated at Max/-5 percent tolerance loading basis,” said ADNOC, which pumps most of the crude produced in the United Arab Emirates, the world’s fifth-largest oil exporter.
At the same time ADNOC said it would continue to supply its customers of Murban crude with 15 percent less than normal contractual supplies, as it did in December, while Upper Zakum supplies will be reduced by 3 percent from the norm.
Overall, refiners and analysts agreed the notice represented hard evidence of one of OPEC’s core members implementing its share of the group’s agreed 2.2 million barrel per day (bpd) production cut, their third since September that amount to removing 5 percent of world supply from the market.
The news could aid oil prices that have been undermined by concerns over adherence to OPEC’s cuts. U.S. crude fell 9 percent to about $35 a barrel on Wednesday, near its lowest in over four and a half years after more gloomy U.S. economic data.
“The move shows compliance to OPEC’s decision to cut supply and could send a signal for tighter supply ahead. It’s possible that the move could effectively help support prices,” said Soichi Okuda, chief economist at Sumitomo Shoji Research Institute.
Spot differentials for February-loading Murban crude strengthened to a premium of more 10 cents a barrel to ADNOC from flat to less than 10 cents on news of the cuts, traders said.
SHAIFF, LOWER ZAKUM UNMENTIONED
The ADNOC statement did not mention its Umm Shaiff or Lower Zakum grades, shipments of which had been cut by 5 and 10 percent in December. Sources with some Northeast Asian refiners said they understood that they could still use an option to load 5 percent above contractual volumes on those smaller grades.
Oil refiners in Asia have been on tenterhooks this week as they awaited last-minute cuts to January Gulf crude supplies that could force them to quickly revise their purchase plans.
But apart from the UAE and Saudi Arabia’s earlier action, industry sources said they’ve received no notices of deeper cuts, making it likely that the next wave may come only for February.
Kuwait had already eliminated the option for upside tolerance several weeks ago, but at the same time removed other supply curbs it had imposed earlier, suggesting that it was trading one type of cut for another rather than removing more supply.
Saudi Arabia Oil Minister Ali al-Naimi said last week that the kingdom was now pumping about 8.2 million bpd, not far above its new January 1 quota of 8.05 million bpd.