By shielding biggest buyer Asia from supply cuts, OPEC risks prolonging fuel glut

OPEC's efforts to hold market share in Asia by keeping its customers, which take about two-thirds of its exports, supplied amid wider output cuts could prolong the global fuel glut and frustrate its attempt to bolster prices. Saudi Arabia, the de-facto leader of the Organisation of the Petroleum Exporting Countries (OPEC), will target its supply cuts at refiners in the United States and Europe rather than Asia. Ally Kuwait is following a similar strategy, and OPEC's second-largest producer Iraq is even raising exports to Asia.
"US and European refiners are having January allocations cut from Saudi Arabia, Kuwait and the UAE (United Arab Emirates)," Morgan Stanley said on Monday in a note to clients. This comes as refiners from Japan, China and South Korea have told Reuters they have not received reduction notices from most Middle East suppliers except for slight restrictions from Abu Dhabi that are within contractual limits.
The producers fear that their self-imposed cuts starting in 2017 would allow US oil companies to sneak in and grab market share. Yet shielding Asia could undermine OPEC's strategy to eat into the world's bloated stockpiles through supply reductions as Asia also sits on enormous fuel stocks, likely weighing on prices through 2017. "It may take some time for crude supplies to tighten in Asia, which I expect around the second half of 2017," said Eng Hian, head of trading at AgriTrade Energy in Singapore, which owns three supertankers. "Consider the existing supply overhang."