Saudi Aramco to Cut Oil Supplies to Asia in December

By Nesa Subrahmaniyan and Christian Schmollinger

Nov. 10 (Bloomberg) -- Saudi Aramco, the world's biggest state oil company, will cut crude supplies to Asia in December for the first time in at least a year as demand slumps for naphtha and diesel fuel.

The Dhahran, Saudi Arabia-based producer will reduce shipments to Japan, South Korea and Taiwan by 5 to 6 percent below levels agreed under annual contracts, said five refinery officials, who received notices from the company. They asked not to be identified because of confidentiality agreements.

Saudi Arabia, the biggest producer in the Organization of Petroleum Exporting Countries, and other members agreed on Oct. 24 to lower output quotas by 1.5 million barrels a day, the first cut in two years, after global demand fell. OPEC is attempting to bolster crude oil prices that have plummeted 56 percent since reaching a record $147.27 a barrel on July 11.

``The Saudis are delivering what they agreed to at the last meeting,'' said Victor Shum, senior principal at energy consultant Purvin & Gertz Inc. in Singapore. ``Most of the big producers see the need to cut to support prices.''

Aramco will also reduce supplies to China with cuts mostly on Arab Medium and Arab Heavy grades, said a trader from a Chinese refiner, who didn't want to be identified. Aramco exports about 50 percent of its crude oil to Asia.

Naphtha Demand

Demand for naphtha, used to make ethylene into petrochemicals, has slumped in Asia lowering the price of the fuel to a discount against crude oil.

``Given the sluggish demand coupled with low refining margins, the Asian crude market remains under strong pressure,'' Vienna-based JBC Energy said in its weekly oil market report dated today.

As part of OPEC's output cuts, Saudi Arabia agreed to trim production by 466,000 barrels. OPEC supplies about 40 percent of the world's oil.

For December shipments, Aramco will reduce supplies of its Arab Extra Light and Arab Heavy grades by about 7 to 8 percent, one refinery official said. Saudi Arabia supplies crude oil of different quality, with the Arab Light grade fetching about $5.05 a barrel more than Arab Heavy for December sales to Asia. Heavier crude grades yield lower-value oil products.

Aramco typically tells customers in the first half of the month how much oil they will receive in the following month.

To contact the reporter on this story: Nesa Subrahmaniyan in Singapore at nesas@bloomberg.net