OPEC deal: ADNOC to cut crude supplies to Asia

ADNOC's supply cuts will mostly hit Asia although they remain within operational tolerance limits of 5%

Photo for illustration only.
Photo for illustration only.

Abu Dhabi National Oil Company (ADNOC) said it would cut crude supplies by 3-5% across its three export grades to meet commitments under an OPEC deal to curb production.

The move is among the first visible indicators that oil markets could be physically tighter next year as the Organisation of the Petroleum Exporting Countries (OPEC) and other producers cut output to ease a supply glut and prop up prices.

Still, traders said ADNOC's cut is unlikely to have a large impact on the market as it is within operational tolerance limits and buyers have extra oil from Saudi Arabia and Iraq to replace lost Abu Dhabi supplies.

"I think it's manageable. Many (refiners) received incremental Arab Extra Light in January to cover," said a North Asian refinery official, who spoke on the condition of anonymity.

In a notice to term lifters, ADNOC said it would reduce Murban and Upper Zakum crude supplies by 5% and would cut Das crude exports by 3%.

"In line with OPEC's latest decision to cut production, we regret to advise you that crude oil allocation for the month of January 2017 will be reduced," the producer said.

ADNOC's supply cuts will mostly hit Asia although they remain within operational tolerance limits of 5%. The contract clause allows either the seller or buyer to adjust actual oil loading volumes based on logistics.

ADNOC's production hit a record 3.1mn bpd in November, according to a Reuters survey. The producer's flagship crude is light sour Murban with an API gravity of about 40 degrees and its production is about 1.6mn bpd.

Besides state-controlled ADNOC, France's Total, South Korea's GS Energy and Korea National Oil Corporation (KNOC) and the Japan Oil Development Company (Jodco) are partners in producing onshore crude. Key Murban crude buyers are in Japan, South Korea, New Zealand and Thailand.

The UAE's main offshore oils are Upper Zakum and Das crude.

Upper Zakum, owned to 28% by US oil major ExxonMobil , and 12% Jodco, is a medium grade crude.

Das, a blend from the Umm Shaif and Lower Zakum oilfields, is a relatively light crude grade. Beyond ADNOC's 60% share, Britain's BP, France's Total and Japan's Jodco are also partners in producing Das crude.

Separately, Kuwait Petroleum Corp (KPC) has also notified at least one customer in Asia that it "will implement its share of the reduction, which shall take effect January 2017", the North Asian refinery official said.

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