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. Last Updated: 07/27/2016

Saudis to Rein in Oil Production

LONDON -- OPEC power Saudi Arabia has changed tack on output policy and is leading a drive aimed at reining in overproduction to help stem a slide in world oil prices, industry and OPEC sources said Tuesday.

Riyadh has informed many customers of cutbacks in December supplies under term contracts after several months of heavy leakage above its official OPEC quota, they said.

The move comes as Organization of the Petroleum Exporting Countries officials fret that quota-busting has got out of hand, undermining oil prices despite the bullish threat of a war against cartel member Iraq.

"The movement toward reduction has already started by OPEC countries, including Saudi Arabia," a Gulf source familiar with Saudi thinking said, adding that cartel members were in contact now about restraining oversupply.

"This reduction is likely to intensify in the coming weeks especially in light of a possible warm winter and the resulting lower-than-anticipated winter demand."

Oil prices have fallen from nearly $30 per barrel for Brent blend since mid-September to $24.50 on Tuesday, a welcome filip for global economies struggling to recapture growth.

OPEC President Rilwanu Lukman said Monday that all in the group now were concerned about overproduction. "The whole of OPEC is trying to restrain it. Everyone is on board," he said in New York.

It remains to be seen whether Saudi's OPEC colleagues follow in the kingdom's footsteps quickly and throttle back before the group's Dec. 12 ministerial meeting, where the cheating issue is likely to dominate the agenda.

There is no sign yet of other producers trimming supplies.

"So far the Saudis are the only ones cutting back," said a senior Western oil executive. "They are taking a careful approach to the market. It makes sense to pre-empt a buildup in stocks."

Saudi term contract sales for December are estimated down by about 150,000 barrels per day. Sales to Europe and the United States have been cut both to major customers who buy ex-Ras Tanura and smaller buyers who purchase on a delivered basis.

Supplies to Asia, where refiners pay a premium for their crude, remain steady.

This week's comments from OPEC officials illustrate a swift change of thinking in the cartel in how to present policy.

Just two weeks ago Lukman, OPEC Secretary-General Alvaro Silva and Saudi Oil Ministry adviser Ibrahim al-Muhanna presented a united front during an industry conference in London, saying the leakage was of no concern because it was only enough to meet demand.

Their coordinated campaign to justify the extra supply as necessary to balance rising winter consumption failed to calm traders on markets made jittery by the reports of ballooning quota-busting, and Brent fell briefly below $23 per barrel.

Riyadh, like others in OPEC, will still be substantially in excess of quota. It pumped 8.1 million bpd, more than 1 million bpd above its 7.05 million bpd quota, in September and October, according to Reuters estimates.

While Saudi Arabia has acknowledged some leakage, it denies pumping as much as 8 million bpd.