Saudi Arabia, Kuwait sign deal to resume joint oil output

Saudi Energy Minister Prince Abdul Aziz bin Salman, left, with Kuwait’s Emir Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah following the signing of the agreement. (SPA)
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Updated 25 December 2019

Saudi Arabia, Kuwait sign deal to resume joint oil output

  • An agreement on the demarcation of land and maritime borders in the neutral zone also signed

JEDDAH: Saudi Arabia and Kuwait signed an agreement to resume pumping at two major oilfields in a shared neutral zone on Tuesday.

Kuwait’s Oil Minister Khaled Al-Fadhel said on Twitter that the memorandum of understanding signed with Saudi Arabia included “the resumption of production in the divided zone.”

The state-run KUNA news agency reported that the two countries also signed an agreement on the demarcation of land and maritime borders in the neutral zone.

The oil produced in the neutral zone in the border area is shared equally between the two nations.

Khafji, an offshore field, was jointly operated by Kuwait Gulf Oil Co. (KGOC) and Saudi Aramco Gulf Operations, while the onshore Wafra field was operated by KGOC and Saudi Arabian Chevron.

Commenting on the deal, political analyst Dr. Hamdan Al-Shehri told Arab News: “The agreement signed between both the countries — Saudi Arabia and Kuwait — is a step forward.”

It is very important for both countries, he said adding that this step will benefit both sides economically.

“This is the way to solve problems between countries,” Al-Shehri said.

“The Gulf Cooperation Council  countries are always ready to resolve issues amicably through dialogue,” Al-Shehri added.

The resolution of this issue, he said, is a message to the entire world. Tuesday’s agreement comes as oil prices are under pressure due to abundant reserves and weak global economic growth.

The deal could take as much as a year to bring the field back to full capacity. The fields can produce 0.5 million bpd or 0.5 percent of global supply.

Continued soft pricing has prompted the Organization of the Petroleum Exporting Countries (OPEC) and its allies to make deeper production cuts starting next month.

Saudi Arabia pumps just under 10 million barrels per day (bpd), while Kuwait produces around 2.7 million bpd.

Meanwhile, oil prices rose on Tuesday in thin pre-Christmas trading after Russia said cooperation with OPEC on supply cuts would continue. 

US oil major Chevron, which helps operate the fields, said full production was expected within 12 months. Brent crude was up 30 cents, or 0.45 percent, at $66.69 a barrel. US West Texas Intermediate was 23 cents higher at $60.75 a barrel.

OPEC and Russia will continue their cooperation as long as it is “effective and brings results,” Russian Energy Minister Alexander Novak said in an interview.

OPEC and allies agreed in November to extend and deepen output curbs in place since 2017. The reduction of output could see as much as 2.1 million barrels per day (bpd) taken off the market, or about 2 percent of global demand.

Still, OPEC needs to do more to balance the market on a sustainable basis, Bjornar Tonhaugen, head of oil market research at Rystad Energy, said in a note.

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“The OPEC cuts didn’t fully solve the problem — instead they offer a light bandage to get through the first quarter of 2020,” said Tonhaugen.

While OPEC has been cutting production, US producers have been filling the gap, pumping ever greater amounts of crude to reach a record high of about 13 million bpd in November.

That has helped swell inventories with US stocks up about 1 percent this year.

Crude stocks are, however, expected to have fallen by about 1.8 million barrels last week, a second week of declines, according to a preliminary Reuters poll.

The weekly government report on inventories has been delayed by two days due to Christmas.


OPEC, allied nations extend nearly 10M barrel cut by a month

Updated 40 sec ago

OPEC, allied nations extend nearly 10M barrel cut by a month

  • The meeting, originally scheduled for next week, was brought forward to Saturday

VIENNA: OPEC and allied nations agreed on Saturday to extend a production cut of nearly 10 million barrels of oil a day through the end of July, hoping to boost energy prices hard-hit by the coronavirus pandemic.
Ministers of the group and outside nations like Russia met via video conference to adopt the measure, aimed at cutting out the excess production depressing prices as global aviation remains largely grounded due to the pandemic. It represents some 10% of the world's overall supply.
However, danger still lurks for the market. Algerian Oil Minister Mohamed Arkab, the current OPEC president, warned attendees that the global oil inventory would soar to 1.5 billion barrels by the mid-point of this year.
“Despite the progress to date, we cannot afford to rest on our laurels,” Arkab said. “The challenges we face remain daunting.”
That was a message echoed by Saudi Arabia's Oil Minister Abdul Aziz bin Salman, who acknowledged “we all have made sacrifices to make it where we are today.” He said he remained shocked by the day in April when U.S. oil futures plunged below zero.
“There are encouraging signs we are over the worst,” he said.
Russian Energy Minister Alexander Novak similarly called April “the worst month in history” for the global oil market.
The decision came in a unanimous vote, Energy Minister Suhail al-Mazrouei of the United Arab Emirates wrote on Twitter. He called it “a courageous decision and a collective effort deserving praise from all participating producing countries.”
OPEC has 13 member states, including Saudi Arabia. The additional countries part of the plus-accord have been led by Russia, with Mexico under President Andrés Manuel López Obrador playing a considerable role at the last minute in the initial agreement.
Crude oil prices have been gaining in recent days, in part on hopes OPEC would continue the cut. International benchmark Brent crude traded Saturday at over $42 a barrel. Brent had crashed below $20 a barrel in April.
The oil market was already oversupplied when Russia and OPEC failed to agree on output cuts in early March. Analysts say Russia refused to back even a moderate cut because it would have only served to help US energy companies that were pumping at full capacity. Stalling would hurt American shale-oil producers and protect market share.
Prices collapsed as the coronavirus and the COVID-19 illness it causes largely halted global travel. That also hurt US shale production, drawing the ire of President Donald Trump. But Trump welcomed the earlier deal, as US Energy Secretary Dan Brouillette did on Saturday with the extension.
“I applaud OPEC-plus for reaching an important agreement today which comes at a pivotal time as oil demand continues to recover and economies reopen around the world,” Brouillette wrote on Twitter.
Under a deal reached in April, OPEC and allied countries were to cut nearly 10 million barrels per day until July, then 8 million barrels per day through the end of the year, and 6 million a day for 16 months beginning in 2021.
However, some countries produced beyond their quotas set by the deal. One of them was Iraq, which remains decimated after the yearslong war against the Islamic State group.
On Saturday, Iraq Oil Ministry spokesman Assem Jihad said in statement that Baghdad had “renewed its full commitment” to the OPEC+ deal.
“Despite the economic and financial circumstances that Iraq is facing, the country remains committed to the agreement," Jihad said.
Analysts had expected OPEC and the other nations to extend the cuts of 10 million barrels per day by one more month, but not longer, since the level of demand is still fluctuating.
“If the demand is great, countries like Russia will want to produce more oil, so they probably won’t want to get locked into a longer-term deal that may not help them,” said Jacques Rousseau, managing director at Clearview Energy Partners.