Saudi slashes oil output, says market oversupplied

KUWAIT Sun Apr 17, 2011 4:04pm EDT

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.

(Additional reporting by Eman Goma and Robert Campbell; Writing by Robert Campbell; Editing by Mike Nesbit and Maureen Bavdek)

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Comments (13)
I believe this is the Saudis expressing the depth of their displeasure with US support of protestors in Bahrain and Yemen. Unlike the protestors in Libya, the protestors in Bahrain are Shiite and are, if not under the direction of Iran, under their influence. The Iranians are seeking domination of the middle east and the Saudi’s rightly fear the growth of Iranian power. The decrease in oil production is their way of reminding the US and the west that our strategic interests are tied to their own.

Apr 17, 2011 12:20pm EDT  --  Report as abuse
More proof that the cost of oil and gas has nothing to do with demand, as the market is already saturated and demand is relatively low. It’s artificial, based upon unwarranted speculation (I suspect funded by the oil companies themselves) which is driving up the prices. I know that in the US, the price of gasoline started rising steadily the very same week that the Republicans took control of the House of Representatives. Probably entirely coincidental, but it could be that they know Congress won’t look into any price gouging charges, because, well, they own the Republican Congressional ‘representatives’. So, they’re safe as long as the representatives get their cut of the profits for their reelection campaigns, and still get use of the Exxon (or whatever company’s) corporate jets to fly their family to vacation, etc.. It’s sad when ‘your’ representatives actually represent the corporations that fleece you at every opportunity. It’s even more sad when middle class Americans and those in and near poverty vote them into office, believing the lies they are told over and over again.

Apr 17, 2011 1:21pm EDT  --  Report as abuse
Sierra9093 wrote:
Why friends do we continue to support these regimes which use the weapons and tools that they buy from us to repress their people? Then they screw us at the worst possible times. We to support democracies all over, but especially in this part of the world, where our continued support has not been good for anyone.

Apr 17, 2011 3:04pm EDT  --  Report as abuse
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