Oman will cut crude oil exports to Asia by 15 per cent to meet local demand, the Ministry of Oil and Gas said in Muscat. The supply cuts are expected to begin from June this year and will partly account for the 45,000 barrels per day cut promised by Oman as a part of production cut agreement with OPEC members.
“The Ministry of Oil and Gas has informed its customers on contract in Asia that it will reduce supply by 15 per cent starting in June. The supply cut is to meet rising demand at the state owned Sohar Refinery,” an official from the Ministry of Oil and Gas confirmed.
China is the major recipient of Omani crude with around 90 per cent crude exports from the Sultanate reaching Chinese ports and expected to be the country most affected by this decision.
Oman’s rising domestic demand comes from a surge of petroleum industries including the multibillion dollar Sohar Refinery Improvement Project that is ready to boost refined product output by 4.2 million tonnes a year to 13 million tonnes a year.
The improvement project by Orpic is likely to increase the manufacturing share of the gross domestic product as it will reduce naphtha purchases and produce bitumen, mainly used to manufacture asphalt, to cater to growing infrastructure projects in the country.
A media statement from OPEC, following the recent meeting of non-member OPEC states in Kuwait City, requested that an OPEC technical committee and the Organisation’s secretariat should ‘review the oil markets conditions and revert to them in April 2017 regarding the extension of the voluntary production adjustments’.
Reports stemming from the meeting suggested that voluntary production adjustments can roll over beyond June for another six months due to rise in prices noticed post OPEC deal in December.
The current OPEC agreement triggered a price rally that saw Oman crude prices double to above $55 a barrel in three months before falling to sub $50 level last week over concerns of rising US inventories.
Mohammed Sanuski Barkindo, General Secretary of OPEC noted in his opening remark of the meeting: “Conformity levels in January and February have been better than market expectations, but further advancements can, and need to be made. It is vital that we see the full commitment of each and every participating country. We expect 100 per cent conformity. This will be vital to help counter the market developments and the increasing volatility we have witnessed over the past couple of weeks. We still believe that the full and timely implementation of the decisions taken last year will see destocking accelerate by the end of the first half of 2017 with positive upshots and anticipated balanced market towards the end of the year,”
However, rising shale production in the US has cast shadow over the production adjustments extending until the end of the year. Data from International Energy Agency (IEA) shows US inventories grew at unprecedented rate while demand slowed since December 2016.
Under the OPEC deal in Vienna last year, Oman promised to cut 4.5 per cent of crude oil produced to control the supply glut that has hit global markets since 2015. The deal has witnessed an unprecedented compliance rate of 94 per cent in February according to OPEC, an eight per cent point increase from January.
Oman’s crude oil output averaged 1 million barrels a day for the first time in history in 2016 before the Sultanate agreed to production cuts.
This article was first published by The Times of Oman