Saudi Aramco ‘explores supply cuts to meet OPEC target’

Saudi Aramco is reportedly approaching all its customers for possible cuts from February.
Updated 06 January 2017
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Saudi Aramco ‘explores supply cuts to meet OPEC target’

LONDON: Saudi Aramco has started talks with customers globally to discuss possible cuts of 3 percent to 7 percent in February crude loadings as it moves to implement an agreement on curbing global oil output, sources said on Thursday.
The Organization of the Petroleum Exporting Countries (OPEC) agreed in late November to cut production in the first half of 2017 to reduce global oversupply and prop up prices.
“Aramco is approaching all its customers for possible cuts from February and discussing likely (supply) scenarios,” one of the sources said. “Nothing is confirmed yet,” he said, adding that the scenarios were for 3 percent to 7 percent cuts.
Aramco did not immediately comment.
Under the deal, Saudi Arabia agreed to cut output by 486,000 barrels per day (bpd), or 4.61 percent of its October production of 10.544 million bpd.
Energy, Industries and Mineral Resources Minister Khalid Al-Falih said last month that January oil production could fall below the Kingdom’s agreed ceiling.
“We have done a very high reduction to Saudi Aramco’s customers in Europe and the US, and some customers in Asia, which will bring the Kingdom’s production below the agreed upon ceiling,” he said.
Saudi Aramco will be receiving nominations for February crude supplies from its customers and is assessing which grades it could cut, a second source said.
Saudi oil buyers will be notified by Jan. 10 of their respective crude allocations for February.
“Saudi Arabia, out of OPEC (members), is the country where we should expect the most compliance (to the OPEC agreement). In a sense, it is a confirmation that they are doing what they said they will do,” Petromatrix oil strategist Olivier Jakob said.
Saudi Arabia’s crude output fell from a revised 10.60 million bpd in November to 10.45 million bpd in December, according to a Reuters survey of OPEC production.
“Exports are down markedly from a massive November number,” said one source who tracks Saudi output.
“The bottom line is December is down from November with regard to supply to market.”
Aramco raised the official selling price (OSP) for most of the crude grades it sells to Asia and the US, but cut prices to Europe.
The price of Arab Light crude for Asian customers rose by $0.60 a barrel compared with January to $0.15 a barrel below the Oman/Dubai average.
Traders in Asia said the price hikes were slightly more than expected, and coming on the back of supply cuts in February.


Gulf defense spending ‘to top $110bn by 2023’

Updated 23 min 14 sec ago
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Gulf defense spending ‘to top $110bn by 2023’

  • Saudi Arabia and UAE initiatives ‘driving forward industrial defense capabilities’
  • Budgets are increasing as countries pursue modernization of equipment and expansion of their current capabilities

LONDON: Defense spending by Gulf Arab states is expected to rise to more than $110 billion by 2023, driven partly by localized military initiatives by Saudi Arabia and the UAE, a report has found.

Budgets are increasing as countries pursue the modernization of equipment and expansion of their current capabilities, according to a report by analytics firm Jane’s by IHS Markit.

Military expenditure in the Gulf will increase from $82.33 billion in 2013 to an estimated $103.01 billion in 2019, and is forecast to continue trending upward to $110.86 billion in 2023.

“Falling energy revenues between 2014 and 2016 led to some major procurement projects being delayed as governments reigned in budget deficits,” said Charles Forrester, senior defense industry analyst at Jane’s.

“However, defense was generally protected from the worst of the spending cuts due to regional security concerns and budgets are now growing again.”

Major deals in the region have included Eurofighter Typhoon purchases by countries including Saudi Arabia and Kuwait.

Saudi Arabia is also looking to “localize” 50 percent of total government military spending in the Kingdom by 2030, and in 2017 announced the launch of the state-owned military industrial company Saudi Arabia Military Industries.

Forrester said such moves will boost the ability for Gulf countries to start exporting, rather than purely importing defense equipment.

“Within the defense sector, the establishment of Saudi Arabia Military Industries (SAMI) in 2017 and consolidation of the UAE’s defense industrial base through the creation of Emirates Defense Industries Company (EDIC) in 2014 have helped consolidate and drive forward industrial defense capabilities,” he said.

“This has happened as the countries focus on improving the quality of the defense technological work packages they undertake through offset, as well as increasing their ability to begin exporting defense equipment.”

Regional countries are also considering the use of “disruptive technologies” such as artificial intelligence in defense, Forrester said.

Meanwhile, it emerged on Friday that worldwide outlays on weapons and defense rose 1.8 percent to more than $1.67 trillion in 2018.

The US was responsible for almost half that increase, according to “The Military Balance” report released at the Munich Security Conference and quoted by Reuters.

Western powers were concerned about Russia’s upgrades of air bases and air defense systems in Crimea, the report said, but added that “China perhaps represents even more of a challenge, as it introduces yet more advanced military systems and is engaged in a strategy to improve its forces’ ability to operate at distance from the homeland.”