Major oil producers in the Middle East Gulf have deepened output cuts and have already cut combined production by more than 5 million barrels per day (bpd) as a de facto shutdown to tanker traffic in the Strait of Hormuz affected production.
As stocks fill up and crude oil has no way out of the Gulf, top Middle Eastern producers and most influential OPEC members have had to cut their original oil output.
Bloomberg reported on Tuesday that Saudi Arabia has cut its oil production by 2 million barrels to 2.5 million barrels, sources familiar with the situation told Bloomberg.
Reports emerged on Monday morning that Saudi oil giant Aramco has cut oil production in two sectors as unrest around the Strait of Hormuz hampers crude exports from the Gulf.
Saudi Arabia has some capacity to redirect exports to the sea through the Strait of Hormuz, though using an east-west pipeline network. However, the pipeline volume is a fraction of the crude flows that are effectively blocked by Hormuz.
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Iraq, OPEC’s second-largest producer after Saudi Arabia, also cut production by 2.9 million bpd, according to Bloomberg sources.
Production cuts in the UAE currently range from 500,000 bpd-800,000 bpd, while Kuwait has cut production by around 500,000 bpd, said the source, who declined to be identified due to the fact that they were speaking on confidential information.
On Aramco’s Q4 earnings call on Tuesday, CEO Amin Nasser declined to comment on Saudi production levels, although the executive warned there would be “disastrous consequences” for the oil market and the global economy if the Strait of Hormuz is blocked.
US President Donald Trump sought to reassure markets on Monday, claiming the war would end soon, but Iran pledged on Tuesday to export “a liter” of oil from the Middle East until the US and Israel stopped bombing.
“Trump’s talk will only go so far. Ultimately, the market will need to resume oil flows through the Strait of Hormuz to keep oil prices moving lower,” ING commodities strategists Warren Patterson and Eva Manti said in a note on Tuesday.
“Having failed to do so, we are unlikely to have seen the peak yet.”
By Tsvetana Paraskova for Oilprice.com
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