Saudis Starting to Tighten the Spigot


After finally agreeing to cut oil production after two-plus years of decline, Saudi Arabia has indicated that refining customers in both North America and Europe will receive lower shipments starting in January. The reason for those specific targets is because of lower margins, particularly in the United States.

Asian customers won’t be affected, with eight refineries across the continent having been told by the Kingdom’s state-run firm, Saudi Aramco, to expect regular shipments. Three of those refineries will actually see increases in their shipments, continuing the ravenous demand that’s marked primarily by China’s emergence as an economic global power.

The Asian strategy is seen by many in the industry as a way to keep Russia in check. Since the Russians aren’t part of OPEC, an agreement with their group that make up another contingent of oil producing companies was needed and eventually reached on December 11. Among the countries in this group are Mexico and Malaysia, with Russia’s pledge to make cuts being seen as open to question.

The reason stems from previous pledges by the CEO of Rosneft, a key Russian oil producer. In the past, Igor Sechin’s pledges have also been mixed together with his ridicule of making such cuts. Thus, simple trust may be one of the stumbling blocks in maintaining the integrity of this particular agreement.

Saudi Arabia’s announcement of cuts came near the same time that they announced record production levels for November. The 10.72 million barrels per day topped the previous high of 10.67 million, set in July. The cuts will be expected to reduce daily Saudi output to 10.058 million.

Equally high have been the exports of crude oil from Saudi Arabia, which amounted to 7.812 million barrels per day during the month of September.

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