The largest oil producers in the Middle East Gulf have deepened production cuts and are already lowering output by a combined more than 5 million barrels per day (bpd) as the de facto halt to tanker traffic in the Strait of Hormuz has started to affect upstream production.
As storage fills and crude has no way out of the Gulf, the top Middle East producers and most influential OPEC members have had to resort to cutting actual oil production.
Saudi Arabia has slashed its oil production by between 2 million bpd and 2.5 million bpd, anonymous sources familiar with the situation told Bloomberg on Tuesday.
Reports emerged as early as Monday that Saudi oil giant Aramco had started reducing oil production at two fields as the disruption around the Strait of Hormuz starts to choke off crude exports from the Gulf.
Saudi Arabia has some capacity to re-direct exports to the Red Sea to bypass the Strait of Hormuz using its east-west pipeline network. However, the pipeline volumes are a fraction of crude flows lost with Hormuz effectively closed.
Iraq, OPEC’s second-largest producer behind Saudi Arabia, is also slashing output, by about 2.9 million bpd, according to Bloomberg’s sources.
Production cuts in the United Arab Emirates (UAE) currently amount to 500,000 bpd-800,000 bpd, while Kuwait has slashed output by about 500,000 bpd, said the sources who declined to be identified due to the fact they are discussing confidential data.
At Aramco’s Q4 earnings call on Tuesday, CEO Amin Nasser declined to discuss Saudi production levels, although the executive warned of “catastrophic consequences” for the oil market and global economy if the halt to Strait of Hormuz traffic continues.
U.S. President Donald Trump on Monday sought to reassure markets and claimed the war will end soon, but Iran on Tuesday vowed not to let “a litre” of oil to be exported from the Middle East until the United States and Israel stop bombing it.
“Trump’s words will only go so far. Ultimately, the market will need to see a resumption of oil flows through the Strait of Hormuz to sustain a move lower in ,” ING’s commodities strategists Warren Patterson and Ewa Manthey said in a Tuesday note.
“Failing that, we are unlikely to have seen the highs yet.”
