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Irina Slav

Irina Slav

Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.

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Saudi Arabia, Kuwait Discuss New Oil Production In Neutral Zone

Saudi Arabia’s Crown Prince Mohammed has discussed the restart of crude oil production in the neutral zone between Saudi Arabia and Kuwait during a meeting with Kuwait’s Emir Sheikh Sabah al-Ahmad al-Jaber al-Sabah, Reuters reported ahead of the Sunday visit, quoting sources in the know, who declined to be named.

Prince Mohammed was accompanied by Energy Minister Khalid al-Falih, the sources also said.

Joint oil production in the neutral zone was suspended in 2015, but earlier this month the Financial Times reported that the two countries were mulling over a restart amid rising oil prices and the matching rise in worry among large oil buyers.

The neutral zone, the FT reported at the time, could be pumping half a million barrels daily in a few months, according to the International Energy Agency, which would add to more than 10 million bpd of Saudi production and almost 3 million bpd on Kuwaiti production based on the latest figures for July.

The talks on the production restart come despite earlier statements from Al-Falih that Saudi Arabia does not see the need for higher output: according to the minister, the market was near balance, despite the rising benchmarks and the upcoming sanctions against Iran. Now, it seems, the world’s top exporter of oil has had a change of heart.

Saudi Arabia is considered to be the oil producer with the most spare capacity among OPEC members, with the Energy Information Administration calculating it at between 1.5 and 2 million bpd. Some industry observers, however, have questioned the figures, which are defined as the amount of daily production that can be launched within 30 days and sustained for at least 90 days, according to EIA.

With Venezuela’s production falling consistently and the Iran sanctions as well as Iraq’s difficulties in boosting its oil production, OPEC’s total spare capacity is now estimated to be just 1.49 million bpd this quarter, according to a different estimate. This certainly raises the question whether the cartel can boost production enough to rein in the price rise ahead of the sanctions or within days of their entry into force.

By Irina Slav for Oilprice.com

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  • Mamdouh G Salameh on October 01 2018 said:
    Under intense pressure from President Trump to raise its oil production to force oil prices down ahead of the Congressional midterm elections in November, Saudi Arabia is scraping the bottom of the barrel to get some 250,000 barrels a day (b/d) from the Neutral Zone it shares with Kuwait to add to the 400,000 b/d it has already added two months ago to global oil supplies.

    However, oil prices are continuing their surge ignoring President Trump’s call and acknowledging the realities in the market, namely, the robustness of the global oil fundamentals, OPEC/Russia’s inability to add more than the 650,000 barrels a day (b/d) which Saudi Arabia and Russia combined have already done and persistent question marks about Saudi production and spare capacities.

    Saudi Arabia claims that it has a production capacity of 12.5 million barrels a day (mbd). This can’t in any stretch of the imagination be true because despite repeated calls by President Trump to Saudi Arabia to significantly increase its oil production, it managed to add only 400,000 b/d to the market and even these did not come from new production but from oil stored on board tankers or on land. Saudi oil production peaked at 9.6 mbd in 2009 and has been in decline since.

    Therefore, Saudi claim of having a 2 mbd-spare capacity is very doubtful and is yet to be tested by the market.

    Under such circumstances, it would not surprise me at all if oil prices continued their surge hitting $85 a barrel this month and breaking through $100 by early next year.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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