Saudis Signal Deeper Oil Output Cuts Than Expected

By Katarzyna Klimasinska and Grant Smith

Dec. 11 (Bloomberg) -- Saudi Arabia, the world’s biggest oil exporter, cut production more than traders and analysts had estimated last month, reflecting the nation’s commitment to halt the $100 plunge in crude prices.

Oil rallied after Oil Minister Ali al-Naimi said in an interview in Poznan, Poland, that the kingdom pumped 8.493 million barrels of oil a day in November. That’s 287,000 barrels a day less than estimated by the International Energy Agency, and close to Saudi Arabia’s OPEC quota of 8.477 million barrels. Libya’s top oil official Shokri Ghanem said previous OPEC cuts haven’t been enough.

The comments suggest that the Organization of Petroleum Exporting Countries will cut production for a second time when it meets next week in Oran, Algeria. Last month, al-Naimi said $75 a barrel is a fair price for crude, which slumped to a four- year low near $40 a barrel on weaker demand and concern OPEC members weren’t fully complying with their agreed quotas.

“The Saudis might have been impatient with the market’s skepticism, so they’ve decided some transparency is needed,” said Mike Wittner, head of oil market research at Societe Generale SA in London. “It shows they’re deadly serious about cutting already and serious about cutting more.”

November data on OPEC indicated the 11 members bound by quotas were producing nearly 1 million barrels a day in excess of the formal limit agreed in October. The group pledged to slash output by 1.5 million barrels a day on Oct. 24 to arrest the slide in prices.

‘Substantial Reduction’

OPEC will need to make a a “substantial” reduction when it meets on Dec. 17, Ghanem said in a Bloomberg TV interview today.

“These cuts which we decided in October and are trying to implement fully are not taking the excess quantities in the market,” he said. “There is still a lot of oil in the market.”

The 11 members subject to formal limits pumped 28.24 million barrels a day last month, according to Bloomberg estimates, compared with a ceiling of 27.3 million barrels a day.

“Everybody was looking to Saudi Arabia and saying they have to do something otherwise we will have even lower prices,” said Ehsan Ul-Haq, head of research at Vienna-based JBC Energy GmbH. “Now Saudi Arabia can say they are complying fully and everybody should do the same.”

Crude oil futures traded in New York rose as much as $2.41 a barrel to $45.93 a barrel. They traded at $45.67 at 12:20 p.m. London time.

Reverse Slide

OPEC President Chakib Khelil, along with officials from Libya, Qatar, Venezuela and Iran, have said the organization will need to announce further cuts at next week’s summit to reverse oil’s 69 percent slide from its July record.

“ We also would like to see the non-OPEC members taking steps in this regard,” Ghanem said.

Russia, the largest exporter outside OPEC, will co-ordinate with the group to stabilize prices, President Dmitry Medvedev said Nov. 27. Norway, the fifth-largest producer, has refused to co-operate.

To contact the reporter on this story: Katarzyna Klimasinska in Warsaw at kklimasinska@bloomberg.net