Major Arab oil producing countries are looking to keep their term crude supplies into Asia at least for January loadings, while coping with OPEC's production cut agreement first with their incremental supply volumes, sources with direct knowledge of the matter said Monday.
A number of major Arab oil producers told S&P Global Platts that producers intend to keep their term crude supply volumes with Asian customers and implement last week's OPEC agreement with their incremental supply volumes where necessary.
The Arab producers' intended move came to light as some Asian refiners were trying to assess if OPEC's announced production cut would go beyond the tolerance flexibility clause in their term contracts with Middle East suppliers.
While major national oil companies in the Middle East sell the majority of their crude production on a term basis, there are typically incremental volumes sold to refiners on a case by case basis.
MINIMIZING OIL SUPPLY IMPACT
With OPEC looking to maintain its policy of keeping market share balanced by cutting surplus oil supplied into the market, national oil companies are seeking to minimize any impact to their key buyers across Asia, sources said.
"Most [term] contracts [have been] renewed already [for 2017], [I] don't think the term commitments will be affected," a source at a national oil company within the Gulf Cooperation Council said.
This was echoed by another major oil producer within the GCC. "We are still working through [the cuts] right now, we will protect the term [sales] the rest [incremental sales] will not be possible [due to the cuts]," the source said.
A source at another GCC member state's national oil company noted that they had been preparing for the potential of an OPEC cut for a number of months and there should be no major impact on key term buyers.
"At least for the core countries...[those within the] GCC - have been preparing [for a cut] for quite a while...[the cuts] should be factored in for those countries," the source said.
"[We will] work on the tolerance it should be ok [it] won't affect any term volume" the source added
A source at another GCC national oil company said: "Each member has to do his own way [implement the cuts]... we haven't decided anything [yet] it's too soon."
ASIA SEES NO IMPACT FOR JAN
Sources at refiners in Asia said Monday the companies do not see any impact on their term crude loading volumes with Middle Eastern suppliers so far in January.
"We have been told that our term allocation for January will be executed as contracted," said an Asian refiner source but added that it would still need to keep an eye on a possible 5% cut in its operational tolerance supply volumes.
Another Asian refiner source said the refiner does not see any immediate impact from OPEC's cut on its term and spot crude procurements for January.
"We have not got received any notice on a term supply cut," the source said.
OPEC's decision on November 30 to hold production at 32.5 million b/d starting January 1, 2017 -- the first coordinated cut since the depths of the global financial crisis in 2008 -- amounts to an approximate 1.2 million b/d cut from the producer group's current output levels. The deal exempts Libya and Nigeria and is contingent on key non-OPEC producers also agreeing to cut 600,000 b/d in total.
