PREVIEW-Saudi oil seen steady, clients not asking for more
Trade the News
Tuesday February 08, 2011 01:33:11 AM GMT
* Customers are not asking for extra crude
* Market well-supplied, but could factor in future tightness
* Saudi emphasising demand, rather than price
By Barbara Lewis and Florence Tan
LONDON/SINGAPORE, Feb 8 (Reuters) - Saudi Arabia will this week tell regular customers how much oil they will receive next month, and the signs so far are supply will be little changed as the leading exporter resists market pressure to produce more.
As oil has climbed to $100, well above Saudi Arabia's preferred range of $70-$80 a barrel, the kingdom has said it is ready to pump extra oil but only if justified by demand. It is not willing to deliver crude into a vacuum.
"We cannot put oil in markets that don't need it," Saudi Oil Minister Ali al-Naimi has said.
Industry sources said they have not requested increased supply and that demand from China, the world's fastest-growing fuel market, has been constrained by refinery maintenance.
One Singapore-based trader said, "The Saudis may reduce exports to the East because of the turnarounds here but increase to the West because turnarounds are falling in the West."
In Europe, however, demand has stagnated, compounded by a looming seasonal lull as the northern hemisphere winter ends and before the start of the U.S. summer driving season, which could draw some refined products across the Atlantic.
"We don't expect any changes. We have nominated our requirements and they are pretty much the same," said a trader with a European oil company.
"Margins are weak and demand is weak," he added.
OPEC's tone has shifted from two years ago. Oil prices were then recovering from a December 2008 crash that took prices down to just above $30, and the group was nervous about any rally that could damage a fragile economy and erode demand for oil.
Now many producer nations have welcomed high prices they say the economy can withstand.
Against the backdrop of unrest in Egypt and concern it could spread across the Arab world, expensive oil has the added advantage of providing funds to supplier nations to stock up on food and contain inflation from other commodities.
WELL-SUPPLIED MARKET
Saudi Arabia has always been a price moderate, wary of destroying demand but also of flooding an already well supplied market.
"Given the availability of abundant idle capacity and commercial inventories, they (OPEC ministers) most likely believe oil prices will roll back to $90 per barrel as the regional tensions recede," said Sadad al-Husseini, an oil analyst and former top official at oil giant Saudi Aramco.
"In the longer term, key OPEC ministers such as His Excellency Ali Naimi have made it clear that should demand actually rise to the levels forecasted by some organisations such as the IEA (International Energy Agency, representative of consumer nations), OPEC would be well prepared to increase oil supplies to avoid any setbacks to the global economy."
The Organization of the Petroleum Exporting Countries is not scheduled to meet to revise its output policy until June, although those with spare capacity, led by Saudi Arabia, can informally adjust supplies whenever they see the need.
OPEC ministers may also informally meet in Riyadh later this month on the sidelines of an energy conference.
Many analysts agree the market has enough oil and there is ample spare OPEC capacity for now -- in contrast with 2007 and 2008 when rapid demand and shrinking supplies drove the rally to the all-time peak of nearly $150 hit in July 2008.
Still, some see upside price risk.
"My only fear is that the market may well be pricing the fundamentals of next year into this year," said Michael Lewis, head of commodity research at Deutsche Bank.
"If you look in 2012, the things you see in 2007 are coming back."
MONTHLY ALLOCATIONS
Saudi Arabia tells its customers around the 10th of each month how much they will receive the following month.
For February, it kept supplies steady, trade sources said.
In January, according to a Reuters survey, Saudi production rose to 8.33 million barrels per day (bpd) from 8.25 million bpd in December.
Saudi output is most closely watched as it has the greatest spare capacity and the most influence within the 12-member producer group.
Other OPEC members also raised output as higher prices encouraged them to stray from production curbs agreed in December 2008. Now they are delivering only about half of the agreed 4.2 million bpd output reduction.
The Reuters survey found the most significant increase in January came from Iraq, which after years of war and sanctions is not bound by OPEC supply curbs.
"A lot will depend on quota-free Iraq. If the country continues to show healthy production figures, the scope for other (quota-bound) OPEC members to cash in on their spare capacity is reduced respectively," JBC Energy said.
(Additional reporting by Risa Maeda in Tokyo, Meeyoung Cho in Seoul, Humeyra Pamuk in Dubai and Alex Lawler in London, editing by Jane Baird)
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