By Syndication Washington Post, Bloomberg · Salma El Wardany, Fiona MacDonald
Their agreement allows for "the resumption of oil production from the joint fields," the Saudi energy ministry said on Twitter. The oil fields in 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.
Chevron Corp., which operates the area's Wafra field together with Kuwait Gulf Oil Co., expects full production there to be restored within 12 months, it said Tuesday in a statement. Wafra has been shut down since May 2015.
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 sentiment amid concerns about faltering growth in world demand and rising supply from the U.S. and other producers.
The neutral zone, spanning more than 2,200 square miles (5,700 square kilometers), 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 2014, when Khafji was shut down after a spat between the neighbors. The disagreement escalated over the Wafra field, when Saudi Arabia extended the original 60-year concession of the field, giving California-based Chevron, through its subsidiary Saudi Arabian Chevron Inc., rights there until 2039. Kuwait was furious over the announcement and claims Riyadh never consulted it about the extension.
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.