Oil cut not aimed at lifting prices: Saudi

Saudi oil ministry says reduction in Saudi production late last year was due to lower demand for oil both at home and abroad.

Reuters/DubaiTop oil exporter Saudi Arabia cut oil output in December because of lower seasonal demand, a senior Saudi oil ministry adviser told the state news agency yesterday, rejecting media reports suggesting the move was aimed at pushing up crude prices.Saudi Arabia cut its crude oil production by around 700,000 barrels per day (bpd) over the last two months of 2012, with output falling to around 9mn bpd in December. It topped that up with oil held in storage to supply a total of 9.15mn bpd to the market in December.News of the cut has helped support Brent prices at over $111 a barrel in morning trade, comfortably above the $100 Riyadh says it favours.But Saudi oil ministry adviser Ibrahim al-Muhanna said in a statement that the reduction in Saudi production late last year was due to lower demand for oil both at home and abroad.“Saudi Arabia’s production fluctuates month-to-month, and depends on a range of domestic, regional and international factors. At this point in time, production is driven by customer requirements, not by price levels. It is the market which sets the price of oil,” Muhanna, an adviser to Saudi Oil Minister Ali al-Naimi, said.“One driver of Saudi Arabia’s production fluctuation is domestic demand, and this depends on seasonality. Peak demand was in the summer, but it has weakened over the last quarter, as usual. Another factor, equally important, is international customers’ demand for Saudi oil. This is also seasonal,” he said.“If we look at the last quarter of 2012, for example, there were many challenges in terms of domestic growth in the eurozone and concerns about the US fiscal cliff. This, consequently, impacted the demand for oil.”Muhanna said media reports accusing Saudi Arabia of deliberately trying to push oil prices by cutting production were “categorically wrong.”He said Saudi Arabia was optimistic that economic uncertainty would pass and that economic growth would return in 2013.“Saudi Arabia stands ready to respond to these changes, and again will meet all customers’ needs. Saudi Arabia remains strongly committed to a stable oil market,” he said.Saudi production in December was more than a million barrels below its peak production last summer, when the kingdom’s own oil use peaks because it burns oil to generate electricity to meet soaring air conditioning demand.Analyst Matt Smith of Schneider Electric said yesterday after markets opened in New York that the reported 5% drop in December Saudi oil production — about 9mn bpd — was to “help support prices” by reducing supply.Yesterday, Brent oil edged up in choppy trading, seesawing with the US dollar as crude futures tried to rebound after coming under pressure from weaker gasoline in the previous session.Oil analysts said the dollar index drew pressure and crude received an early lift after Charles Evans, the Chicago Federal Reserve president, said in a speech that the Fed “will provide the monetary accommodation necessary to close the large resource gaps that currently exist”.But Brent briefly turned lower as the dollar index recovered from earlier weakness and after US stock futures declined, helping to turn European stocks weaker.“The dollar index recovered after being lower and the stock market futures pulled back, helping crude oil pare gains,” said Phil Flynn, analyst at Price Futures Group in Chicago.Concern that Republicans might be willing to allow the US to default on debt if spending cuts are not part of a deal to raise the US debt ceiling also applied pressure on oil and stock markets, brokers and analysts said.US President Barack Obama scheduled a surprise news conference for yesterday morning to press his case for raising the US borrowing limit.“There seems to be some increased chatter about Republicans accepting the idea of debt default and that could be weighing on crude and other markets on a macro basis,” said John Kilduff, partner at Again Capital LLC in New York.Brent February crude rose 28¢ to $110.92 a barrel by 1627 GMT, having seesawed either side of the 100-day moving average at $111.02. The Brent February contract expires today.US February crude was down 10 cents at $93.46 a barrel, having swung from $92.95 to $94.29.Brent’s premium to US crude was higher at around $17.50, but only after falling below $17 a barrel during yesterday’s session.