Saudi meets OPEC vow with big supply hike to Asia

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TOKYO/SINGAPORE, Oct 11 (Reuters) Saudi Arabia told major Asian refiners on Thursday it will raise their crude sales by a tenth in November, more than expected as it meets the lion's share of OPEC's pledge to boost output, industry sources said.

The recovery in shipments to 100 percent of contractual volumes was a surprise to many customers, and would equate to as much as a 350,000 barrels per day (bpd) increase in exports.

That is more than half of OPEC's promised 500,000-bpd rise agreed one month ago after the kingdom convinced other members to raise output in a gesture to consumer nations, a move that has failed to tame oil prices still near record highs above .

The first confirmation of extra OPEC oil is still unable to help ease prices, although Asian traders said higher supplies would likely depress differentials for spot crude in December.

U.S. crude oil futures rose 35 cents to .65 a barrel by 0917 GMT, not far off their record high of .90 struck in September.

Sources at two Japanese refiners and one in South Korea said state-run Saudi Aramco had notified them that it would supply the entire volume agreed under the refiners' annual contract, the first time since OPEC began cutting output in November 2006.

Traders with refiners in Taiwan and China said they expected the same, but had yet to receive formal notices.

In October, before OPEC's supply hike came into effect, the Saudis supplied key Asian customers with about 90 to 91 percent of contracted volumes. The kingdom sold about half of its 7 million bpd of exports to Asia last year, its own data shows.

''We did not expect full allocations. We had kept Saudi rates reduced when we did our refinery planning,'' said a trader with a North Asian refiner who was told he would receive full volumes.

''But we are happy there is no reduction. We have quite low inventories now,'' the trader added.

Stocks will also come under pressure in November when Asian refiners will bear the brunt of a 600,000-bpd reduction in Abu Dhabi exports due to offshore oilfield maintenance.

Traders had expected some increase in sales to Asia after Aramco told European customers a day ago it would maintain supplies unchanged versus October, but not such a sizeable jump given Saudi's one-third share of overall OPEC production.

Analysts say the latest move shows the kingdom stepping up its role as the market's main swing supplier.

''It's obvious that in the end we might now have 500,000 bpd of additional oil, and I think the Saudis are very serious about their undertaking,'' said Ehsan Ul-Haq of Vienna-based energy consultants PVM.

''They are doing what they pledged, and they've been doing these things on behalf of the whole organisation.

SAUDI OUT FRONT Saudi Aramco had cut supplies to its Asian customers by between 4 and 10 percent over the past year after the Organization of the Petroleum Exporting Countries agreed a supply cut from Nov. 1 last year and again from Feb. 1.

Despite record-high crude prices, refinery profit margins have held up better in Asia than in other regions, where some refiners have said they did not need the extra crude for now.

Refining margins for benchmark Dubai crude cracked in Singapore averaged .36 a barrel over the past week, around double European margins and nearly 50 percent better than those in the United States, Reuters data show Asian prices are also more enticing for Saudi Arabia, which last week sharply raised its November official selling prices (OSPs), putting flagship Arab Light crude at a record-high premium of TOKYO/SINGAPORE, Oct 11 (Reuters) Saudi Arabia told major Asian refiners on Thursday it will raise their crude sales by a tenth in November, more than expected as it meets the lion's share of OPEC's pledge to boost output, industry sources said.

The recovery in shipments to 100 percent of contractual volumes was a surprise to many customers, and would equate to as much as a 350,000 barrels per day (bpd) increase in exports.

That is more than half of OPEC's promised 500,000-bpd rise agreed one month ago after the kingdom convinced other members to raise output in a gesture to consumer nations, a move that has failed to tame oil prices still near record highs above $80.

The first confirmation of extra OPEC oil is still unable to help ease prices, although Asian traders said higher supplies would likely depress differentials for spot crude in December.

U.S. crude oil futures rose 35 cents to $81.65 a barrel by 0917 GMT, not far off their record high of $83.90 struck in September.

Sources at two Japanese refiners and one in South Korea said state-run Saudi Aramco had notified them that it would supply the entire volume agreed under the refiners' annual contract, the first time since OPEC began cutting output in November 2006.

Traders with refiners in Taiwan and China said they expected the same, but had yet to receive formal notices.

In October, before OPEC's supply hike came into effect, the Saudis supplied key Asian customers with about 90 to 91 percent of contracted volumes. The kingdom sold about half of its 7 million bpd of exports to Asia last year, its own data shows.

''We did not expect full allocations. We had kept Saudi rates reduced when we did our refinery planning,'' said a trader with a North Asian refiner who was told he would receive full volumes.

''But we are happy there is no reduction. We have quite low inventories now,'' the trader added.

Stocks will also come under pressure in November when Asian refiners will bear the brunt of a 600,000-bpd reduction in Abu Dhabi exports due to offshore oilfield maintenance.

Traders had expected some increase in sales to Asia after Aramco told European customers a day ago it would maintain supplies unchanged versus October, but not such a sizeable jump given Saudi's one-third share of overall OPEC production.

Analysts say the latest move shows the kingdom stepping up its role as the market's main swing supplier.

''It's obvious that in the end we might now have 500,000 bpd of additional oil, and I think the Saudis are very serious about their undertaking,'' said Ehsan Ul-Haq of Vienna-based energy consultants PVM.

''They are doing what they pledged, and they've been doing these things on behalf of the whole organisation.

SAUDI OUT FRONT Saudi Aramco had cut supplies to its Asian customers by between 4 and 10 percent over the past year after the Organization of the Petroleum Exporting Countries agreed a supply cut from Nov. 1 last year and again from Feb. 1.

Despite record-high crude prices, refinery profit margins have held up better in Asia than in other regions, where some refiners have said they did not need the extra crude for now.

Refining margins for benchmark Dubai crude cracked in Singapore averaged $6.36 a barrel over the past week, around double European margins and nearly 50 percent better than those in the United States, Reuters data show Asian prices are also more enticing for Saudi Arabia, which last week sharply raised its November official selling prices (OSPs), putting flagship Arab Light crude at a record-high premium of $2.35 a barrel to Oman/Dubai.

The Middle East spot market for November cargoes traded last month at multi-year highs on the back of the Abu Dhabi maintenance and as European major Shell scooped up a third of all available Dubai, Oman and Upper Zakum cargoes for that month.

But the extra Saudi crude may put a damper on differentials for December-loading cargoes, which are now trading.

''Now Asian refineries have to run more Saudi crude and have less space for other Middle Eastern grades,'' said a trader.

REUTERS MP DS1620 .35 a barrel to Oman/Dubai.

The Middle East spot market for November cargoes traded last month at multi-year highs on the back of the Abu Dhabi maintenance and as European major Shell scooped up a third of all available Dubai, Oman and Upper Zakum cargoes for that month.

But the extra Saudi crude may put a damper on differentials for December-loading cargoes, which are now trading.

''Now Asian refineries have to run more Saudi crude and have less space for other Middle Eastern grades,'' said a trader.

REUTERS MP DS1620

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