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UAE's ADNOC to Curb Supply to Asian Buyers
Oil & Gas | 27 March 2021

Abu Dhabi National Oil Company (ADNOC) has deepened crude oil supply cuts to Asian clients in June to 10-15% from 5-15% in May, one week ahead of an OPEC meeting, a few sources with knowledge on the matter said on Thursday, as reported by Reuters.

The supply reduction will be applied to the four grades of crude that ADNOC sells to Asia, in particular Murban, Das, Umm Lulu, and Upper Zakum, they said.

ADNOC earlier said it will be curbing supply to Asian buyers for May by 5-15% as a feature of its production control obligations under the OPEC deal. Likewise, Asian buyers actually have adequate supply in storage and are drawing from it while prices are high. Maintenance season in numerous Asian refineries is helping keep demand under tight restraints, as well.

Strangely, the news comes before the following OPEC meeting, where the extended cartel will examine supply allocations for May. The Reuters sources anticipate that the organization should keep production levels where they are now a result of the gloomier demand outlook following the most recent surge of Covid-19 infections in Europe.

The latest pandemic advancements in Europe this week managed to overshadow the price effect of the Ever Given container ship that got stuck in the Suez Canal, redirecting all traffic from the chokepoint. While the news on the blockage lifted oil benchmarks recently, news on lockdown expansions in numerous pieces of Europe dampened optimism rapidly.

OPEC is meeting next week to discuss the production cuts, and the assumptions are that the cartel will maintain the current production levels. In any case, the oil market, as one Reuters’ source put it, is delicate, and surprises are possible.

However, regardless of whether the cartel keeps the current cuts, Libya and Iran could undermine its efforts to keep prices higher. Libya has stated ambition of lifting oil production to 1.45 million BPD before the year’s end, and Iran could boost its production by 2 million BPD if the U.S. eliminates sanctions on Tehran. The two nations are exempt from the OPEC cuts in view of their political issues.

Crude oil producers from Africa, Europe, and the United States have confronted troubles selling to Asia, particularly China, as buyers took comparatively cheaper oil from storage while refinery maintenance has decreased demand, sources said.

June likewise turns out to be the first contract month for Murban crude futures, which will be launched by the Intercontinental Exchange Inc. on March 29.

Khaled Salmeen, the head of ADNOC's downstream, marketing and trading department, said towards the beginning of March the UAE was clinging to OPEC's reduction pact, and ADNOC had sufficient storage to ensure uninterrupted supply of Murban in spite of production restrictions.

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