Saudi, Kuwait agree to resume oil output at neutral zone

Saudi Arabia and Kuwait agreed to resume oil production in a shared border region more than four years after halting output.

The agreement allows “the resumption of oil production from the joint fields,” the Saudi energy ministry said on Twitter. The oil fields at the so-called neutral zone can produce as much as 500,000 barrels a day — more than each of OPEC’s three smallest members pumped last month.

A resumption is unlikely to add oil to the market because Saudi Arabia and Kuwait both adhere to production limits that the Organization of Petroleum Exporting Countries extended into March. Even so, the agreement to re-start the fields could weigh on market sentiments amid concerns about faltering growth in world demand and rising supply from the U.S. and other producers.

The neutral zone, spanning more then 5,700 square kilometres, was created by a 1922 treaty between Kuwait and the fledgling kingdom of Saudi Arabia. In the 1970s, the two Gulf Arab monarchies agreed to divide the area and incorporate each half into their respective territory while still sharing and jointly managing the zone’s petroleum wealth. The region contains two main oil fields: the onshore Wafra and offshore Khafji.

The area hasn’t produced anything since 2015, when Khafji was shut down after a spat between the neighbours. Wafra stopped pumping in 2014. The disagreement began over the Wafra field, which Chevron Corp. operates. Saudi Arabia extended the original 60-year concession of the field, giving the US company rights there until 2039. Kuwait was furious over the announcement and claims Riyadh never consulted it about the extension.

Chevron, through its subsidiary Saudi Arabian Chevron Inc., remains committed to the neutral zone and is ensuring that production can resume whenever a decision is taken, Sally Jones, a company spokeswoman, said on Sunday.

Saudi Arabia and Kuwait have held a number of private meetings since 2015, at one point coming close to signing an agreement before pulling back at the last minute over wording in the final documents regarding contentious sovereignty issues. They entered a fresh phase of talks earlier this year.

The fields are particularly important because U.S. sanctions on Iran and Venezuela have tightened the supply of heavy, high-sulfur crude — precisely the kind of oil that the neutral zone produces. U.S. diplomats had been pressing both sides to reach an agreement.