Saudi Arabia, Kuwait discuss boosting Neutral Zone oil production

Saudi Arabian and Kuwaiti officials for the Neutral Zone -- the oil-producing area that straddles the border between the two countries -- met on July 3 to discuss ways to "develop and exploit the natural resources in the divided region," Kuwait's state-run news agency Kuna reported, citing a statement from the Kuwait oil ministry.

Discussions included boosting production from the current 170,000-175,000 b/d to 500,000 b/d, though 250,000-300,000 b/d is more likely in the next five years, a source with knowledge of the operations told S&P Global Commodity Insights.

"There are operational challenges" likely to keep production from going any higher, the person said.

The fields located in the Neutral Zone lie in onshore and offshore territory shared by the two nations. The offshore Al-Khajfi is operated by Saudi Arabia's Aramco Gulf Operations Co. and Kuwait Gulf Oil Co., a unit of Kuwait Petroleum Corp., while the onshore Wafra is operated by KGOC and Saudi Arabian Chevron.

New sources of oil and natural gas are being sought as a ratcheting of western sanctions on Russian oil flows, including the EU's ban on most imports by the end of the year, is expected to tighten global supplies, as demand has picked up with the summer driving season in the northern hemisphere.

But widening concerns over a global recession and rampant inflation have weighed on the market, contributing to volatile prices in recent weeks.

Dated Brent has climbed 58% this year to $121.54/b as of July 1, according to Platts assessments by S&P Global Commodity Insights.

US President Joe Biden is set to make a high-stakes trip to Saudi Arabia for a summit with Gulf leaders in mid-July. Most observers say Saudi Arabia and UAE are the only oil producers with spare capacity to boost oil production quickly, while any increase from the Neutral Zone would likely take years.

The July 3 Neutral Zone meeting was held at the headquarters of the joint Wafra operations in Kuwait, according to Kuna. Kuwait's undersecretary of the oil ministry, Nimr Fahd al-Malik al-Sabah, who is head of the Kuwait side, attended the meeting along with the head of the Saudi side, Muhammad al-Brahim, assistant Saudi energy minister, Kuna said.

The countries agreed in 1970 to co-manage and share crude production from the zone equally. However, they were offline for more than four years until 2020, due to a political dispute that was resolved with the signing of an agreement in December 2019.

Saudi Arabia is "proactive" in looking for ways to boost Neutral Zone production while Kuwait is more holding back, the person with knowledge said.