Saudi Arabia, Kuwait settle dispute over oil fields

So far, the markets have shrugged off the deal.

Saudi Arabia and Kuwait said Tuesday that they were ending a long-running dispute over an oil-rich strip of land between the two countries, a move that will allow as much as 500,000 barrels of crude per day to return to the world market.

The news was welcomed by Chevron, the big American producer that has an agreement to pump oil from some of those fields.

The deal, marked with a signing ceremony in Kuwait with officials from both countries, gives Saudi Arabia access to a kind of heavy crude that is in short supply in world markets. And it is a likely to be seen as the latest in a series of wins for the Saudi energy minister, Prince Abdulaziz bin Salman, who was named to the job in September and recently presided over the initial public offering of Saudi Aramco, the national company and the world’s largest oil producer.

But the opening of additional spigots of oil may be a mixed blessing because the Organization of the Petroleum Exporting Countries and Russia agreed this month to reduce output to prop up prices.

The Saudis and Kuwaitis now have a tricky task in convincing the markets that they are not going to unleash a flood of new crude that would weigh on prices.

Prince Abdulaziz said the oil from the shared fields “will not affect the level of the kingdom’s supplies to global markets,” according to the official Saudi Press

Agency.

The agency did not say how the Saudis would maintain their recently agreedupon quota of about 9.7 million barrels a day. Analysts said the Saudis and the Kuwaitis might compensate for any increases by dialing back output at other fields.

So far, the markets have shrugged the deal off. On Tuesday, oil prices were up about 0.6% to nearly $70 a barrel for Brent crude, the main international bench mark.

The shared fields, in the 2,200-square-mile area known as the neutral zone, were shut down in 2015 after Saudi Arabia and Kuwait feuded over land use and environmental issues.

Some analysts said the deal reflected efforts by Crown Prince Mohammed bin Salman, Saudi Arabia’s chief policymaker, to ease tensions with countries in the region, perhaps to nurture an improved environment for economic growth.

“The real import is that this is part of the big Saudi outreach to its neighbors,” said Bhushan Bahree, an OPEC analyst at IHS Markit, a research firm.

A big beneficiary is expected to be Chevron. Although Saudi Aramco holds a near monopoly on production in the kingdom, Chevron operates a large field called Wafra in the shared zone on behalf of the Saudis.

The Saudi-Kuwaiti feud has cost Chevron about 100,000 barrels a day in lost production.

In a statement on Tuesday, Chevron said it expected to restore full output “within 12 months.” Despite frustrations caused by the shutdown, Chevron executives said the shared fields could be a major source of growth.

For instance, Chevron wants to increase the use of steam to loosen up the deposits of molasses-like oil beneath the sands. “We remain committed to playing a role in further unlocking” these resources, the company said.

The kind of heavy crude found in the area may be one reason that the Saudis and the Kuwaitis were able to reach a deal at what seems like an awkward time. Analysts say the market is low on this oil because of the sharply reduced output of Venezuela and Iran.

“The world really needs that kind of crude after we have lost Venezuelan barrels and Iranian barrels,” said Amrita Sen, chief oil analyst at Energy Aspects, a market research firm.

Sen also said output from the neutral zone would give the Saudis the option of shutting down parts of the key Abqaiq processing facility for more extensive repairs after it was damaged by an aerial attack in September and then quickly patched up.

Prince Abdulaziz, who is an older half brother of Prince Mohammed, helped push for the Saudi Aramco’s IPO, which raised more than $25 billion for the kingdom. He is also credited with overseeing the rapid restoration of production at Aramco after aerial attacks blamed on Iran temporarily slashed output by more than 50%.

This month, the prince persuaded fellow OPEC members and Russia at a meeting in Vienna to agree to new output cuts aimed at bolstering flagging oil prices.

But with crude production from the United States, Norway, Brazil and other countries expected to increase, analysts say he may have more to do to win over skeptical markets.