Hiked Saudi oil supply to result in cuts soon-experts

Reuters, 04.01.03, 2:47 PM ET

NEW YORK, April 1 (Reuters) - A pre-war hike in oil exports from top OPEC producer Saudi Arabia has unleashed enough global crude supply that the cartel will have to start thinking soon about production cuts, experts said Tuesday. Before the U.S. and British led invasion on Iraq, Saudi Arabia had already boosted supply to the highest level in 21 years. The kingdom's production rose by 600,000 barrels per day (bpd) to 9.56 million bpd, according to Geoff Pyne, a Sempra (nyse: SRE - news - people) Energy oil consultant. Global supply has been further swelled by Venezuela's recovery from a two-month oil workers' strike. The extra Saudi and Venezuelan oil has compensated for supply interruptions from Iraq and Nigeria which have taken some 2.5 million barrels per day (bpd) has been taken out of the 77 million bpd global market. "There is so much supply out there that OPEC is probably going to have to start thinking about scaling back some of this output in the not too terribly distant future, unless the Nigerian situation goes on for quite some time," said George Beranek, analyst with PFC Energy in Washington, D.C. Iraq's exports of about 1.7 million bpd have all but trickled to a halt after the U.N. removed monitors overseeing 'oil for food' exports. Clashes between tribes in Nigeria have shut in some 800,000 bpd of 2.2 million bpd exports there. While Nigeria's stoppage has resulted in tighter supplies of light sweet crude, which is particularly good for making gasoline in the run-up to summer, U.S. refiners are not panicking. Oil prices are more that $10 a barrel below 12-year highs hit in late February, falling another 4 percent to $29.67 a barrel on Tuesday. "Iraq's outage was probably the most anticipated supply disruption we've had in a very long time. The market has coped very well with the loss," said Beranek. In fact, the Iraq and Nigerian disruptions have simply given OPEC more breathing space before it will have to make production cuts over the next three months, experts said. "They (OPEC) don't want to have so much inventory built up in the second quarter that it becomes a liability before the end of the second quarter," said Beranek. Saudi Arabia could cut production to 9 million or 8.9 million bpd, said PFC Energy's Roger Diwan. During OPEC's meeting before the war in Iraq, the group killed a move by some members to suspend production quotas during war, but agreed to keep markets well supplied.