Saudi Arabia’s Possible Oil Supply Cut Rattles Refiners in Asia


A suggestion from Saudi Arabia that OPEC+ may cut oil output has startled refiners in Asia, with two warning such a move could lift prices and fan uncertainty at an already-difficult time for processors in the biggest crude-importing region.

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(Bloomberg) —

A suggestion from Saudi Arabia that OPEC+ may cut oil output has startled refiners in Asia, with two warning such a move could lift prices and fan uncertainty at an already-difficult time for processors in the biggest crude-importing region.

“The move will accelerate the increase in oil prices, bringing more uncertainty going into the winter, when heating demand is poised to rise with a European energy crunch,” said a spokesperson at SK Innovation Co., asking not to be identified in line with policy.

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Saudi Arabian Energy Minister Prince Abdulaziz bin Salman, who represents the largest producer in the coalition, raised the possibility of a cut as global crude prices head for a third monthly drop in August. Futures don’t reflect underlying fundamentals and that may require the Organization of Petroleum Exporting Countries and its allies to tighten supply, according to Abdulaziz.

The intervention by Riyadh comes at a complicated juncture. Natural gas prices are surging, especially in Europe, as fellow OPEC+ member Moscow chokes off supplies following the invasion of Ukraine. That’s intensifying concerns about an economic slowdown just as central banks raise rates to quell inflation, and the US and EU prepare to further tighten curbs on Russian energy flows.

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The Saudi comments are “boosting uncertainty around prices as well as the whereabouts of refining margins and the refinery-planning process,” the SK Innovation spokesperson said. The company is South Korea’s biggest processor.

Brent crude rallied as much as 1% on Tuesday, topping $97 a barrel, after the prince’s comments helped futures to erase a steep intraday loss on Monday. While the global benchmark has retreated from almost $140 hit in March, prices remain more than 40% higher than a year ago.

The kingdom’s comments may have been prompted by expectation of a slowdown in oil demand, with high inflation in Europe and the US, as well as concerns about the economic situation in China, according to Taiwan’s Formosa Petrochemical Corp. spokesman Lin Keh-Yen.

“I think they foresee that demand may slow down or even retreat, so they are taking this action in advance to maintain the supply-demand situation,” Lin said. “They will try to maintain a price close to $100. If prices go even higher, that will cause severe inflation and will cause demand to go down.”



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