Saudi Arabia cuts output in accordance with OPEC deal

Saudi Arabia has cut its crude-oil production by at least 486,000 barrels a day since October, said a person familiar with the kingdom’s output, bringing the world’s largest exporter of petroleum swiftly into line with OPEC’s deal to raise prices.

The news come as the group’s secretary-general said he would hold informal talks with the Kingdom and six other oil producers next week to assess the implementation of the production agreement.

Saudi Arabia agreed to cut its output by 486,000 barrels a day as part of an agreement struck by the Organization of the Petroleum Exporting Countries on Nov. 30 to reduce production by 1.2 million barrels a day. The kingdom’s leaders had said they would quickly implement their cuts, the biggest of any member in the 13-nation cartel. But, with OPEC’s patchy record in implementing production pullbacks, some analysts were skeptical members would abide by their pledges.

Saudi Arabia “has completely implemented the cut—if not more,” the person familiar with Saudi output said. The person said the kingdom—the world’s largest oil exporter and the biggest producer in OPEC—has reduced its production to about 10.058 million barrels a day, the amount it agreed to with OPEC.

Oil prices rose after The Wall Street Journal reported the Saudi production figure, with Brent crude turning positive and rising to $56.57.

In an interview with The Wall Street Journal, OPEC’s secretary-general Mohammad Barkindo said he would hold informal talks with Saudi oil minister Khalid Al-Falih, who holds the group’s rotating presidency, on the side an Abu Dhabi oil conference on Jan 12-13. Dr Barkindo said that the talks, which will gather the oil ministers of Iraq, Algeria, Oman, Qatar, Kuwait and the United Arab Emirates “will focus on a compliance mechanism” for the implementation of coordinated production cuts both inside and outside OPEC.

The disclosures came on the same day that Saudi Arabia’s state-run oil company raised prices for customers in the Far East, a move analysts took as a signal of the kingdom’s firm intention to curtail output.

The higher prices will hit some of Saudi Arabian Oil Co.’s key customers in China, Japan and South Korea, where the Saudi kingdom believes demand is high enough to absorb the price increase, said Edward Bell, a commodities analyst from the Dubai-based Emirates NBD bank. Nearly two-thirds of the company’s crude exports go to the Far East, according to its 2015 annual report.

It is an indication that the company, known as Aramco, is testing which regions can support higher prices, Mr. Bell said.

“Aramco is clearly looking to maximize its revenue as it lowers production by upping prices to its main customer base,” said Mr. Bell.

Aramco didn’t respond to requests for comment.

After a two-year slump during which prices fell to 12-year lows below $28 a barrel in 2016, the oil market has been buoyed by the OPEC agreement. Prices have risen from the mid-$40 a barrel level in November to the mid-$50s this month.

OPEC pledged in November to cut output by more than 1 million barrels a day in hopes of clearing an oversupply of oil that had weighed prices down. With the exception of Iran, Nigeria and Libya, each OPEC member agreed to specific production targets.

Oil traders are now watching OPEC member countries closely for signs of compliance with the pledged cuts.

Most analysts have said Saudi Arabia and the majority of its neighbors in the Persian Gulf will fully comply with the proposed cuts. However, there are still some reservations about other participants.

Iraq, for instance, has signaled to oil traders that it planned to increase oil exports in January. But its oil minister said Thursday the country had begun to reduce output in line with the OPEC agreement.

“It is clear from both the comments and actions from Saudi Aramco that it is going to cut its output as promised,” said Olivier Jakob, an analyst from the Switzerland-based Petromatrix. “[The market] should be watching other producers more closely to see if they are also falling into line.”

Mr. Jakob added the full extent of OPEC cuts won’t be clear until official January data is released in mid-February. Other non-OPEC players, such as Russia, also pledged to cut production but forcing producers to comply is almost impossible.