Saudi Arabia Deepens February Oil Supply Cuts

The world's top oil exporter, Saudi Arabia, will deepen its crude oil supply cuts in February from January levels to Asian consumers to their lowest in almost five years, industry sources said on Friday.

The move by the most influential member of OPEC helped boost global oil prices above $42 a barrel.

It follows OPEC's agreement last month to cut supply by a record amount to try to prop up prices.

Sources at seven Asian buyers confirmed that state oil company Saudi Aramco had notified them of deeper cuts for February, ranging from 7-8 percent to 15 percent, against cuts of 5-10 percent for January.

"The cut was deeper than last month... about 14, 15 percent," a source at a major customer in Japan told Reuters on condition of anonymity as the information is not public.

Besides boosting global oil prices, the curbs may also put a firmer floor under the price of Middle Eastern crude.

Lower term supplies have forced Asian refiners back to the Middle East spot market, pushing up price differentials of most spot crudes last month, and more rises are expected this month.

Saudi Arabia also deepened supply curbs to Europe, refiners in the region said.

While allocations were lower than expected, some refiners said they had asked for less Saudi crude for February due to limited demand.

"There are additional cuts. It's lower than we expected," said one.

Heavier Grades

The Asian cutbacks differ from one refiner to the next as Saudi Arabia likely cut exports of its heaviest and lowest quality grades the most.

"Customers got different cuts because the ratio of grades -- Arab Extra Light, Arab light, Arab Medium and Arab Heavy -- is different company by company," said a trader.

"Cuts should be deeper than average for customers that lift mainly Arab Medium and Arab Heavy."

With cuts to some refiners as deep as 15 percent, curbs to Asia for February are likely to exceed 10 percent overall, making it their largest since April 2004, when Saudi Arabia cut supplies by between 10 and 15 percent.

An overall cut of 15 percent would be equivalent to around 525,000 barrels per day (bpd) less of Saudi crude heading to Asia, with an average cut of 11 percent worth about 385,000 bpd.

Refiners measure supply cuts against the volume stipulated in annual contracts.

Customers had expected Saudi Arabia to cut supplies more to stay in line with OPEC's aim to reduce output and boost oil prices that have fallen more than $100 from a record high of $147.27 a barrel in July.

The Organization of the Petroleum Exporting Countries agreed last month to cut output by a record of 2.2 million bpd, taking total curbs since September to 4.2 million bpd, equivalent to 5 percent of global oil supply.

Saudi Arabia's sharper cutbacks add to similar moves earlier this month by other OPEC producers including Iran, the United Arab Emirates, Kuwait and Libya to curb supplies.

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