By SUMMER SAID and SARAH KENT
DUBAI -- Saudi Arabia cut its oil production by close to 5%
in December in response to lower demand chiefly from Asian
customers, the kingdom's deepest production cut in almost three
years which comes amid expectations for lower demand for OPEC
crude this year.
The sharp cut in production sent the price of European benchmark Brent crude to
its highest level since October. US benchmark West Texas
Intermediate crude also hit a near four-month high.
Saudi Arabia is the world's top oil exporter and has played
an important role in the last two years as one of the few
countries with enough spare production capacity to respond to
It substantially lifted production to fill supply gaps caused
by the civil war in Libya in 2011 and kept it high as the West
imposed tough oil sanctions against Iran last year.
As demand for crude from the Organization of the Petroleum
Exporting Countries falls this year, the Saudi cut shows that
the kingdom, "still wants to have, and does have, the role as
the swing producer in the market," said Thina Saltvedt, a
senior oil market analyst at Nordea Bank Norge.
Saudi oil production fell to 9.025 million bpd in December
compared with 9.49 million bpd a month earlier, according to a
person with direct knowledge of Saudi oil supply.
That marks the sharpest month-on-month cut in Saudi oil
production since January 2009 when the country responded to the
collapse in energy demand due to the global recession,
according to data on the website of the Joint Organizations
Data Initiative, a collaboration between oil producers and
consumers aimed at increasing energy market transparency.
Still, the cut in output doesn't reflect a shift in Saudi
Arabia's approach to supplying the oil market, but reduced
demand for crude from the kingdom's customers, particularly in
Asia, said the person.
Asia's demand for oil is especially significant as
consumption in emerging markets has been the main driver of oil
demand in recent years as Europe and the US struggle to turn
their economies around.
Saudi Arabia has repeatedly stated its commitment to meet
all requests for oil from customers in the last year, but
analysts said the sharp cut in production was to be expected as
demand remains sluggish and production increases elsewhere --
notably in North America and Iraq -- reduce demand for Saudi
"All of the numbers and the majority of analysts are all
suggesting that as we go forward in the year the market is
going to be significantly oversupplied," said Paul Stevens,
senior research fellow in the energy, environment and development program
at London-based independent policy institute Chatham
"There is pressure for OPEC to anticipate this and cut back and
I suspect Saudi Arabia has been quietly doing this in order to
Recent production data suggest other OPEC oil producers have
also cut back. A survey of industry sources and analysts
conducted by The Wall Street Journal last week found
output from OPEC members fell to its lowest level since October
2011 in December.
"Overall I think OPEC will keep things fairly steady after
this recent reduction," said Simon Wardell, research manager in
the energy practice at IHS Global Insight. "They've probably
reduced output as much as I think they need to at this
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