Fate of 500,000 Barrels of Oil at Stake After Saudi Royal Talks

(Bloomberg) -- The Saudi crown prince held talks with Kuwait’s ruler about increasing cooperation on oil policies. In the shadows of their discussions lies the fate of two jointly owned fields that can produce half a million barrels a day of crude and help OPEC fill a possible supply gap.

Khafji and Wafra, the fields located in the shared Neutral Zone between Saudi Arabia and Kuwait, are crucial for the kingdom to meet its official production ceiling of 12.5 million barrels a day of oil. State-owned Saudi Arabian Oil Co., the world’s biggest exporter known also as Aramco, directly controls 12 million barrels of daily Saudi output.

Crown Prince Mohammed Bin Salman Al Saud met with Kuwait’s Emir Sheikh Sabah Al-Ahmed Al-Sabah on Sunday, according to the official Saudi Press Association. The visit is expected to increase the convergence of Saudi and Kuwaiti oil policies and bring more stability to global oil markets, according to a Saudi government statement. The Saudi prince left Kuwait early on Monday, SPA reported, without giving details of the talks.

A resumption in output at even one of the shared fields could make up for about half of the shortfall from production targets that OPEC and its allies set for themselves a few months ago. The Organization of Petroleum Exporting Countries and its partners agreed in June to achieve 100 percent compliance with quotas they established in 2016, yet they’ve been pumping about half a million barrels a day below their collective target.

Kuwaiti Oil Minister Bakheet Al-Rashidi said last week in an interview in Algiers that his country was holding “positive” talks with Saudi Arabia about resuming production at the shared deposits.

Khafji closed in October 2014 due to unspecified environmental concerns, while Wafra, which Chevron Corp. operates on behalf of Saudi Arabia, closed in May 2015 because of difficulties in securing work permits and access to equipment. The fields have a combined capacity of more than 500,000 barrels a day.

Oil extended gains on Monday after the longest quarterly rally in a decade, a surge that has prompted comments and criticism from U.S. President Donald Trump. Concerns are mounting over a looming shortfall of crude as U.S. sanctions restrict Iranian oil exports, and Trump and Saudi King Salman bin Abdulaziz on Saturday discussed efforts to maintain supplies.

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