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Kuwait committed to OPEC cuts despite restart for neutral zone: oil minister

Dubai (Platts)--15 Dec 2016 700 am EST/1200 GMT


Kuwait is committed to cutting output by 131,000 b/d in January in line with its commitments under OPEC's output reduction deal, oil minister Essam al-Marzouq said Thursday.

That was despite Kuwait's state-owned oil company making preparations to restart around 500,000 b/d of production from the Partitioned Neutral Zone (PNZ) shared with Saudi Arabia, which has been closed for nearly two years.

"We started the primary heating and cleaning of operational equipment, pending a final decision from Kuwait's leadership," Marzouqi said, according to comments reported by state-run Kuna news agency.

"Any increase in production from certain areas will be balanced by equal reductions in other regions", the minister said.

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The two countries agreed to restart production from the 300,000 b/d offshore Khafji oil field at the end of March.

Some analysts had said resuming production from the neutral zone, which has a combined output of 500,000 b/d, could temper the increased oil prices seen after OPEC reached its output reduction deal at the end of November.

"One thing to consider is that one of the reasons why Saudi and Kuwaiti output ramped up so high is they were compensating for the loss of the neutral zone. So, its return may represent a smaller net addition than the gross addition of 200,000 b/d or so", said Michael Cohen, an analyst with Barclays Capital before the announcement from the minister.

That followed a December 8 visit by Saudi King Salman bin Abdul Aziz to Kuwait, which was widely thought to have smoothed over the political differences between the neighbors which had caused the fields to be closed.

Since then state-owned Kuwait Gulf Oil Co. (KGOC) has been preparing for a restart at the offshore Khafji oil field. It jointly operates the 300,000 b/d field along with Saudi Arabian Chevron or Saudi Aramco Gulf Operations.

The Khafji field lies in the PNZ between the two countries. It was shut by Saudi Arabia unilaterally in October 2014 amid an escalating dispute with neighboring Kuwait.

The PNZ also contains the 200,000 b/d onshore Wafra field, which ceased production in May 2015 and the 300,000 b/d offshore Khafji field, which was shut by Saudi Arabia in October 2014 amid an escalating dispute with neighboring Kuwait.

Given Saudi Arabia's production capacity of 12.5 million b/d and output hovering at just over 10 million b/d, the closure of the field has not affected the kingdom significantly.

Kuwait is currently producing around 2.8 million b/d and has committed to cutting 131,000 b/d of production to 2.707 million b/d in January under the OPEC agreement.

--Adal Mirza, adal.mirza@spglobal.com
--Edited by Dan Lalor, daniel.lalor@spglobal.com

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