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Saudi Says Oil Supply Cut Not Aimed at Lifting Prices

Source: Reuters 1/14/2013, Location: Middle East

Top oil exporter Saudi Arabia cut oil output in December because of lower seasonal demand, a senior Saudi oil ministry adviser told the state news agency, rejecting media reports suggesting the move was aimed at pushing up crude prices.

Saudi Arabia cut its crude oil production by around 700,000 barrels per day (bpd) over the last two months of 2012, with output falling to around 9 million bpd in December. It topped that up with oil held in storage to supply a total of 9.15 million bpd to the market in December.

News of the cut has helped support Brent prices at over $111 a barrel, comfortably above the $100 Riyadh says it favours.

But Saudi oil ministry adviser Ibrahim al-Muhanna said in a statement that the reduction in Saudi production late last year was due to lower demand for oil both at home and abroad.

"Saudi Arabia's production fluctuates month-to-month, and depends on a range of domestic, regional and international factors. At this point in time, production is driven by customer requirements, not by price levels. It is the market which sets the price of oil," Muhanna, an adviser to Saudi Oil Minister Ali al-Naimi, said.

"One driver of Saudi Arabia's production fluctuation is domestic demand, and this depends on seasonality. Peak demand was in the summer, but it has weakened over the last quarter, as usual. Another factor, equally important, is international customers' demand for Saudi oil. This is also seasonal," he said.

"If we look at the last quarter of 2012, for example, there were many challenges in terms of domestic growth in the Eurozone and concerns about the U.S. fiscal cliff. This, consequently, impacted the demand for oil."

Muhanna said media reports accusing Saudi Arabia of deliberately trying to push oil prices by cutting production were "categorically wrong."

He said Saudi Arabia was optimistic that economic uncertainty would pass and that economic growth would return in 2013.

"Saudi Arabia stands ready to respond to these changes, and again will meet all customers' needs. Saudi Arabia remains strongly committed to a stable oil market," he said.

Saudi production in December was more than a million barrels below its peak production last summer, when the kingdom's own oil use peaks because it burns oil to generate electricity to meet soaring air conditioning demand.

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