Saudi Arabia hits Asia with May oil supply cuts

Saudi Arabia hits Asia with May oil supply cuts

SINGAPORE (Reuters): Oil producers announced a flurry of supply cuts to Asia on Monday, telling buyers that cuts in May would be deeper than in April.

The world's biggest oil exporter, Saudi Arabia, told customers in Japan and South Korea that May supplies would be slashed as much as 17 and 19 percent respectively.

Oman extended its supply cuts, telling customers that a previously announced 8.2 percent cut for May would be increased to more than 11 percent.

However, last week Abu Dhabi National Oil Co (ADNOC), Japan's main supplier of crude, told Tokyo May cuts would be reduced to five percent of contracted volume from 10 percent in April.

The flurry of cuts keeps the pressure on world oil markets, which have risen around 50 percent since the supply cut backs were first discussed in February.

The latest announcements were timely and came hot on the heels of a bullish assessment of the cuts from the International Energy Agency (IEA).

In a report on Friday, the IEA said it expected world oil stocks to fall sharply in 1999 as a result of the global producer plan to cut world supplies 2.1 million barrels per day for the rest of the year

It forecast stocks falling 330 million barrels by the end of the year, if there was 85 percent compliance with the agreement to cut that was put together in The Hague in March. It estimated the current overhang of crude and product stocks at 500 million barrels.

"Oil production agreements have had a history of fragility, but this one may be different," the IEA said. "The deep political foundation underpinning the agreement makes it very difficult to violate the agreement without losing face."

Traders said they were waiting for notice from Iran on the level of May supply cuts. The second biggest OPEC producer cuts supply in April by 15 percent.

For Asia, the cut in global supplies comes at time when its delicate economies are trying to extricate themselves from almost two years of economic crisis.

Analysts have said a sudden rise in import costs for crude could curtail the region's recovery because it would prompt a drain on U.S. dollars and, given the rise in oil prices, could lead to worries about importing inflation.

Much of the inflation worries would depend on whether importers can pass on the higher costs.

Several of the crisis-hit countries are experiencing furious competition in the oil sector, which might slow down any impact on inflation.