Saudis, Kuwait Make Progress On Talks To Resume Oil Output In Neutral Zone

Two of OPEC’s heavyweights, Saudi Arabia and Kuwait, have recently made significant progress in their years-long talks about resolving a dispute over shared fields that can produce some 500,000 bpd, Bloomberg reported on Thursday, quoting people familiar with the issue.

The Saudis and Kuwait made a breakthrough in talks in Riyadh last month about settling some sovereignty issues in the so-called Neutral Zone, which could lead to an agreement about restarting oil production from the area, Bloomberg’s sources said.

The so-called Partitioned Neutral Zone (PNZ) was established between Saudi Arabia and Kuwait in 1922 to settle a territorial dispute between the two countries. As of 2015, the oil production capacity in the neutral zone stood at 600,000 bpd, equally divided between Kuwait and Saudi Arabia, according to the EIA. Production from the zone averaged around 500,000 bpd just before the shutdown of the two oil fields, Khafji and Wafra, in 2014-2015.

The two OPEC members are now drafting new documents preparing for a next meeting expected to be held in Kuwait as soon as this month, one of Bloomberg’s sources noted.

Earlier this year, Saudi Arabia’s Energy Minister Khalid al-Falih said that

Saudi Arabia expects that it could reach a deal with Kuwait to resume oil production from the Neutral Zone this year.

Even if the two sides reach an agreement on resuming production, it’s not clear how fast oil production could be restarted, how fast it could be ramped up, and how much the fields could collectively pump given the fact that it’s been five years since they were shut down.

As much as 500,000 bpd of additional oil output from the Middle East could help ease supply concerns in view of declining production in Iran and Venezuela and fighting in Libya, on the one hand. But these 500,000 bpd could add to the global inventory overhang that OPEC continues to try to eliminate by extending the production cuts into 2020, if oil demand further weakens in the absence of a U.S.-China trade deal and slowing global economy, on the other hand.   

By Tsvetana Paraskova for Oilprice.com

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