The supply cut would drive up crude prices just as weakening economies depress fuel demand and prices, squeezing refiners' profits, the South Korean refining official and a Chinese trader said.
Both declined to be identified as they were not authorised to speak to media. The OPEC+ production cuts come as purchases by China, the world's top crude importer, are expected to hit a record in 2023 as it recovers from the COVID-19 pandemic, while consumption from No.3 importer India remains robust, traders said.
At the same time, European refiners' demand for Middle East
crude has risen - especially for Basrah Heavy and Oman crudes -
to replace Russian oil banned by the European Union since
December, traders and an Indian refining official said.
"Now they'll face the heat," he said, predicting the market
will become "very tight".
Kuwait has already notified buyers it will cut exports to
keep more crude for its Al Zour refinery, and Saudi Aramco is
ramping up operations at its Jizan refinery.
Top exporter Saudi Aramco, which had been expected to cut
official selling prices for term oil sales to Asia in May, may
now decide to raise prices instead, traders said.
With higher prices and less supply of Middle East sour
crude, China and India may be pushed to buy more Russian oil,
boosting revenue for Moscow, said the Indian refining official,
who declined to be named as he was not authorised to speak to
media.
The rise in Brent prices could push Urals and other Russian
oil products to prices above the caps set by the Group of Seven
Nations (G7) aimed at curbing Moscow's oil revenues, he said.
ALTERNATIVES
While traders and analysts had expected crude to be in
surplus in the second quarter with Asian refineries down for
maintenance and French refineries shut due to strikes, they now
expect the OPEC+ cuts to tighten markets ahead of summer, the
high-demand season.
The OPEC cuts would help soak up the excess volumes in the
west, said a Chinese refining source.
Refiners in Japan and South Korea said they are not
considering taking Russian barrels due to geopolitical concerns
and may look for alternative supply from Africa and Latin
America.
Traders are also watching for responses from the United
States, which called OPEC+'s move inadvisable.
"In essence, the purpose of this massive surprise production
cut is mainly to regain market pricing power," the Chinese
trader said.
(Reporting by Muyu Xu and Florence Tan in Singapore, Joyce Lee
in Seoul, Andrew Hayley in Beijing, Mohi Narayan in New Delhi;
Editing by Sonali Paul)
