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.