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Saudi Arabia Curbs Oil Supply to Asian Customers

Saudi Arabia has decreased its oil exports to some of its Asian customers, mostly to South Korea and Japan since last month. The decision to trim the volumes of crude loaded came despite the fact that the country hit a record after it had committed itself not to curb production last year. Reportedly, Riyadh has over-allocated oil in the first two months of this year and the requirements for its oil had risen above 10 million barrels daily since January.

The OPEC has informed its customers that they would obtain full contracted volumes but intended to trim supply later under so-called operational tolerance. Under oil deals with this contractual term, the seller or the buyer can adapt loading volumes, depending on shipping logistics and demand, within 10 percent interval of the contracted Saudi volume. At least three Asian buyers of Saudi oil will nevertheless be getting full contracted volumes next month. Following the Saudi example, the United Arab Emirates, has also opted to trim supply to Asia.

In January and February, Asian consumers were generally allowed to buy more oil by up to 10 percent above contractual volumes to re-fill inventories and meet peak winter demand. Despite the obvious rise in the world’s oil supply, Saudi authorities said that the consumption has been growing as well. According to Alex Pearce of Thomson Reuters Oil Research and Forecasts, “Saudi Arabia has been very vocal about defending market share and it looks like that strategy has been working”. He says that there is “much of the increase in exports heading to Asia but with robust demand also from Europe and in particular the Mediterranean.” In Asia only, Saudi Arabia increased its exports to China to 33 percent in March compared to 24 percent in November last year.

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