UPDATE 2-Abu Dhabi deepens June crude supply curbs to Asia

SINGAPORE/TOKYO, April 28 - The United Arab Emirates will impose in June the deepest curbs on crude supplies to Asia since it began output cuts late last year, a signal that OPEC may be ready to tighten supply again should the need arise.

Abu Dhabi National Oil Co (ADNOC), the main oil producer for OPEC-member the UAE, said on Tuesday it will reduce June supplies of its four main crude grades to Asia by 16-18 percent, versus 10-15 percent for May, a decision that surprised many traders.

The aggressive supply curbs contrasted with the moderate production policy echoed over the weekend by major OPEC members, which said that oil prices around $50 would help support world economic recovery. [ID:nT319781]

"In the past they've done quite well by just giving out signals that they are prepared to tighten the market, either with slightly lower sales or a willingness to cut again," said independent energy consultant Tony Regan.

"By the end of May, they would see if they can get away with doing nothing or if they have to cut again," he said.

Oil supply from the Organization of the Petroleum Exporting Countries, which next meets on May 28, fell in March for a seventh consecutive month, but held above its target as some members pumped above agreed levels, a Reuters survey showed earlier this month.

The UAE, pumping oil at 2.23 million barrels per day (bpd) in March, was nearing its agreed target of 2.22 million bpd, the survey showed. [OPEC/O]

The emirate is usually among the first to announce its crude allocations, followed by Qatar.

SENTIMENT BOOST

The extent of ADNOC's supply cuts surprised many traders and will give a boost to sentiment and price differentials for unsold June barrels, they said.

"It's a little deeper than we expected. We thought the cuts would be around the 15-percent level," said a trading source at a term buyer.

Reflecting the tighter supplies, the flagship Murban crude had traded last week at a premium near 20 cents a barrel against ADNOC, up from earlier deals done around 10-cent premiums.

Murban was assessed to fetch premiums near 10 cents this week, dampened by concerns a deterioration of the swine flu outbreak will hurt economic recovery and oil demand.

"But there will be no big impact on the June market because June barrels are almost all cleared," said a trader.

ADNOC would supply Murban crude at 18 percent below contracted volumes in June compared with a 15 percent cut in May, it said in a statement sent by fax.

The state oil company will also cut supplies of Lower Zakum and Umm Shaif by 18 percent, while Upper Zakum supplies will be 16 percent below the contracted volumes in June.

The cuts to Murban, Lower Zakum and Umm Shaif grades are the deepest since the UAE began cutting production late last year, in line with OPEC's pledged cuts totalling 4.2 million bpd.

ADNOC also said it would continue to keep shipping limits on exports in place for June, depriving buyers of the option to load an additional 5 percent above contracted volumes on each cargo, a standard industry practice known as "operational tolerance".

Following are the cuts in ADNOC term crude supplies to Asian lifters since December 2008.

Dec 08 Jan 09 Feb 09 Mar 09 Apr 09 May 09 Jun 09 Murban 15 % 15 % 15 % 10 % 15 % 15 % 18 % Lower Zakum 10 % - % 10 % 10 % 15 % 15 % 18 % Umm Shaif 5 % - % 10 % 10 % 15 % 15 % 18 % Upper Zakum 5 % 3 % 15 % 15 % 17 % 10 % 16 %