Saudi Arabia has reduced contractual crude supplies to some customers in Japan and South Korea since March by trimming the volumes of oil loaded, six industry sources familiar with the matter said on Monday.
The move, which is limited to some buyers in North Asia, came even as output by the world’s top crude exporter hit a record in March after it pledged late last year to keep production unchanged to defend its market share.
A source with knowledge of the producer’s operations said that Saudi Arabia had overallocated crude in January and February, adding that requirements for its oil had exceeded 10 million barrels per day since the start of the year.
For the past two months, the OPEC producer had informed some customers that they would receive full contracted volumes, only to trim supply later using a contractual term known as operational tolerance, the sources said.
Under oil contracts, the seller or the buyer can adjust loading volumes, depending on demand and shipping logistics, using operational tolerance which ranges from plus to minus 10 percent of the contracted Saudi volume.
Saudi Aramco will supply full contracted volumes of crude oil to at least three Asian term buyers in May, unchanged from April, the sources said, but added that the producer hadn’t informed them of the operational tolerance levels for the month.
Another OPEC producer, the United Arab Emirates, has also trimmed supplies to Asia as it diverts more oil for use at a new refinery.
State-run Saudi Aramco boosted supplies to Asia in January and February by allowing customers to lift up to 10 percent above contractual volumes to re-fill inventories and meet peak winter demand. Sharp price cuts for Saudi oil late last year also boosted demand.
A glut of global supply has caused oil prices to plunge by half since June, although top Saudi oil officials have said global oil consumption is growing.
“Saudi Arabia has been very vocal about defending market share and it looks like that strategy has been working,” said Alex Pearce, a senior analyst at Thomson Reuters Oil Research and Forecasts.
“We see much of the increase in exports heading to Asia but with robust demand also from Europe and in particular the Mediterranean.”
Saudi exports to China increased to 33 percent of the OPEC total in March from 24 percent when they announced production intentions in November, he said.
The producer raised the official selling prices for all grades to Asia in May for a second month in a vote of confidence on demand in the region.