Saudi to limit July oil volumes to Asia, slash U.S. volumes: sources

DUBAI/SINGAPORE (Reuters) - Saudi Arabia, the world’s top oil exporter, will limit volumes of crude to some Asian buyers in July and deepen cuts in allocations to the United States, industry sources with knowledge of the matter said on Monday.

FILE PHOTO: Logo of Saudi Aramco is seen at the 20th Middle East Oil & Gas Show and Conference (MOES 2017) in Manama, Bahrain, March 7, 2017. REUTERS/Hamad I Mohammed/File Photo

State-run oil firm Saudi Aramco would supply full contracted crude volumes to at least five Asian buyers mainly in North Asia and lower volumes for some customers in India, China and South Korea, the sources told Reuters on condition of anonymity.

Cuts in crude allocations to Asia in July would total about 300,000 barrels per day (bpd), deeper than in June, the sources said.

Aramco notified Asian refiners last month that it would reduce oil supplies to Asia by about 7 million barrels in June, its first cuts for that region since OPEC-led output reductions took effect in January.

Elsewhere, crude allocations to the United States have been lowered significantly and Aramco continued to curtail supply to Europe, two sources said. One source said volumes to the United States would be cut by about 35 percent in July, while Europe supplies will be reduced by about 11 pct compared to June.

One of Aramco’s main buyers in China opted for lower nominations in July due to planned refinery maintenance and the more expensive Dubai benchmark, one of the sources said.

Another North Asian customer said Aramco would supply full volumes of heavy crude for a third straight month.

According to the July plans, Aramco would cut supplies to India by close to 200,000 bpd and China by about 110,000 bpd, while supplying full volumes to buyers in Japan and Taiwan, said one source with knowledge of the nominations. Supplies to one South Korean refiner were also reduced, two sources said.

Saudi Arabia, de facto leader of the Organization of the Petroleum Exporting Countries, has cut oil output as part of a global supply pact and trimmed exports to meet rising domestic demand for power during the hot summer months.

An OPEC-led agreement to curb global oil supplies was extended last month until March 2018. The agreement, which includes non-OPEC nations such as Russia, had initially been due to run during the first half of 2017.

When OPEC announced the curbs last year, Saudi Arabia told its customers in Europe and the United States that they would receive lower volumes but shielded most of Asia from the cuts.

However, power demand peaks during summer as residents turn up air conditioners in the desert kingdom where temperatures can reach as high as 50 degrees Celsius.

This year is likely to see an earlier spike in demand as the Muslim fasting month of Ramadan started in late May.

Under the supply pact, OPEC states, Russia and other major producers agreed to cut output by about 1.8 million bpd.

Saudi Arabia accounts for about 40 percent of the cuts pledged by OPEC. It has reduced output by more than 500,000 bpd so its total production now runs slightly below 10 million bpd.

Industry sources told Reuters in April that higher domestic demand for oil in the summer would weigh on exports especially if Saudi Arabia kept output at about 10 million bpd.

Saudi Arabia usually burns about 700,000 bpd of oil for power generation in the hottest months from May to August. This summer, the country may reduce domestic oil consumption as it plans to use more natural gas in power stations.

Reporting by Rania El Gamal in Dubai, Florence Tan in Singapore and Osamu Tsukimori in Tokyo; Editing by Dale Hudson and Edmund Blair