World's biggest crude buyers cutting output

As the world's biggest crude producers stop short of taking action to address the global oversupply, output cuts by their largest customers are helping to mop up the glut.

While Asia buys more oil than any other region, it also accounts for about 8 per cent of supply and has been cutting back as crude's collapse prompts a wave of spending reductions from China to Malaysia.

Shrinking domestic production will mean a greater need for imports that may help support global oil prices.

With the market typically looking to Asian demand as a catalyst for crude's recovery, the traders, producers and refiners meeting in Singapore this week for the industry's annual Asia gathering are paying greater attention to how much the region's pumping out of the ground.

China, the world's second-largest consumer of oil as well as the fifth-biggest producer, is expected to reduce supply more than 6 per cent this year.

"Structurally, this is a really interesting time to be doing business in the Far East," Mr Tan Chin Hwee, the Singapore-based head of Asia- Pacific oil trading at Trafigura Group, said. "We are handling increased volumes at a time when Asian crude production has fallen."


A market rebalancing is coming earlier than expected because of the underestimated supply cuts from Asia.

MICHAL MEIDAN, a London-based analysts at Energy Aspects.

Asia's output peaked last year at 7.5 million barrels a day, according to data from the International Energy Agency (IEA) that excludes Opec member Indonesia. It has dropped since then as companies, particularly state-owned Chinese giants, reduced spending.

Asia's top five producers - China, India, Malaysia, Indonesia and Vietnam - will cut output by 255,000 barrels a day this year and a further 309,000 barrels a day in 2017, according to Energy Aspects, a London-based researcher.

While production is declining, oversupply remains. There is a "massive overhang" of crude and fuel inventories, said the IEA.

As record stockpiles cap oil's recovery much beyond US$50 a barrel, speculation has mounted that the world's biggest producers will take some sort of coordinated action, such as an output freeze, to rebalance the market.

While Saudi Arabia and Russia, the world's biggest suppliers, pledged this week to cooperate, they failed to announce any specific measures to bolster prices.

Imports will make up 76.1 per cent of Asia's oil supply next year, up from 73.4 per cent in 2015, Mr Otabek Karimov, head of supply, trade and logistics at Rosneft, said in Singapore yesterday.

"Growing demand and falling production will lead to increasing import dependency" in Asia, he said.

PetroChina cut its 2016 domestic crude output target to 103 million tonnes, a fall of about 6 per cent from the previous year, as some high-cost fields were shut. Production from China Chemical & Petroleum Corp, known as Sinopec, is on track to shrink by a similar amount, company forecasts show.

Producers in other parts of Asia are also shutting their oldest fields. Indonesia has reduced drilling, hurting supply of Minas and Duri crude.

The slide in Malaysia's Tapis output, which was arrested earlier this decade by investments in so- called enhanced oil recovery, has resumed, said Energy Aspects. "Output in Asia will not bounce back up that quickly because in conventional fields it takes two to three years for the prices to feed into output," said Ms Michal Meidan, a London-based analyst at Energy Aspects. "A market rebalancing is coming earlier than expected because of the underestimated supply cuts from Asia."


A version of this article appeared in the print edition of The Straits Times on September 08, 2016, with the headline 'World's biggest crude buyers cutting output'. Subscribe