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Page added on July 28, 2011

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Kuwait oil production flirts with 37-year peak

Production

Saudia Arabia is getting all the attention as it unilaterally boosted its oil production after last month’s failed Opec meeting, but neighbouring Kuwait deserves consideration too.

The emirate, which at the begining of the year was pumping 2.3m barrels a day, is ramping up its output significantly, according to industry executives. The estimates vary, but some put Kuwait’s oil production now at a 37-year peak of about 2.7m b/d.

Anecdotal evidence confirms that the emirate is willing to ship more oil to its long-term customers. Valero, the largest independent refiner in the US and usually seen as setting the trends in the industry, said on Tuesday during its second-quarter results conference call with analysts that Kuwait was offering more oil.

Joseph Gorder, Valero’s chief commercial officer and head of supply, said that the company was about to bring in more Kuwaiti barrels into the refining hub of the US Gulf.

“The Kuwaitis have lifted their imposed reduction of contract volumes. We were operating for a period there where we had a 10 per cent reduction in our contract volume. They notified us that they were taking that off and that we were able to take more barrels,” he said.

Mr Gorder added: “I do think we’re going to see a lot more medium-sour barrels [the kind of oil Kuwait produces] coming into the market.”

The second-quarter results reporting period continues on Wednesday until the middle of next week and other big US refiners are likely to offer fresh clues about Middle East oil production.

Kuwait ships most of its crude oil into Asia, where industry officials also said that the emirate had offered extra barrels for July and August, lifting contract limitations.

The International Energy Agency’s last estimate of Kuwait production put it at 2.5m b/d in June. But the western countries’ oil watchdog warned that the emirate’s state-owned oil company Kuwait Petroleum Corporation was “bumping up near capacity of 2.54m b/d”.

Yet, industry officials claim that KPC is now able to produce more than the IEA’s maximum capacity estimate, in part thanks to the easing of an export bottleneck at the Mina al-Ahmadi oil terminal, which has allowed for additional production from the super-giant Burgan oil field, the world’s second largest by output.

Industry officials claim the emirate could boost output to more than the recent peak of 2.6m b/d in mid-2008 and bring it to the highest since 1973. Kuwait’s oil output hit an all-time high of 3.3m b/d in 1972.

The additional supply would be welcome by the market. Yet, Saudi Arabia remains the king. Riyadh has lifted its production to 9.7m b/d, the highest level since early 2006 and many expect a further increase in July. Mr Gorder of Valero, echoing an industry consensus, said on Tuesday: “I understand that Saudis are going up to 10m b/d”.

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