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Kuwait Changes Tune at $50 Oil

Kuwait Oil Minister

In a matter of a week, Kuwait has simultaneously said it was seeking to boost production, called for an output freeze to rebalance the market glut, and—most recently—praised OPEC’s strategy for pushing out US shale as successful.

Now that oil is near US$50 per barrel, the Saudi-led OPEC strategy to hang onto market share doesn’t seem so bad.

As told by Kuwait’s acting oil minister, Anas Al-Saleh, in a Wednesday interview with media in Kuwait, the Gulf country will stick by the Saudis as OPEC defends its market share by pumping more to win customers, rather than targeting price.

Related: Iraq Facing Perfect Storm

It’s a strategy, he said in comments carried by Bloomberg, that is working. Crude prices are rising along with demand, and output from non-OPEC countries is declining. Some 3 million barrels per day of supply has left the market due to either the disruption of conflicts (Nigeria, Libya) or natural disasters (Canadian wildfires) or price (US shale).

“Now we see better prices in the market, demand has been increasing […],” al-Saleh was quoted as saying.

So the “theory has been working well,” and Kuwait will be “sticking to the market share strategy.”

It’s not the same line Kuwait was taking last week, before all the supply disruptions started to reverberate through the market.

Related: What Does The Next OPEC Meeting Have In Store?

But let’s take it in order. First up last week, a senior Kuwait Petroleum Corp official has confirmed to media the company’s plans to increase production by 44 percent to almost 4 million barrels a day in 2020. That was when Kuwaiti crude was trading at around $40 per barrel.

Then just days later, Kuwait was calling for an output freeze, ahead of OPEC’s planned 2 June powwow. This came as Moody’s downgraded the credit ratings for Kuwait’s wealthier Gulf neighbors, Saudi Arabia among them.

Kuwait warned that the only solution in sight for the oil-producing countries is output freeze. "There is no option but to freeze output," the country’s Deputy Foreign Minister Khaled Suleiman Al-Jarallah told Japanese media during a visit to Tokyo.

By James Burgess for Oilprice.com

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  • G. V. FOREMAN on May 19 2016 said:
    Well the Arab cat is finally out of the bag. The Kuwait’s oil minister “praised OPEC’s strategy for pushing out US shale as successful”. By default, OPEC was OK with US shale production as long as the oil stayed within the US. However, in 2014 OPEC saw a concerted effort on the part of US oil producers and explorers to amend the 1975 Energy Policy and Conservation Act (EPCA) allowing for the unfettered, free export of US crude, from OPEC’s standpoint the euphemistic gloves were and still are off. It is not entirely ironic that within three to four months of their, US oil interest, lobbying effort, oil prices began their precipitous drop, August 2014, the source of which was attributed to a global oil glut. One can’t help but wonder if this was a matter of reality, of convenience or perhaps a bit of both. The reality, from OPEC’s standpoint, plays out like this: a “dear” friend, the US, which for 40 years wrote off the global oil market, is now exporting crude onto the global market introducing and volatilizing the global crude market. Resolution, from OPEC’s standpoint, “create” an oil glut on a global bases, resulting in decreasing oil prices to the point that US oil exploration, development and expansion would not be economically viable. Granted, the strategy is a two edged sword resulting in a loss revenue for OPEC members. However, the result for OPEC will be maintained market share simultaneously decimating the US fracking energy. From OPEC’s standpoint, it is a “win-win” situation.

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