Saudi-Kuwaiti Neutral Zone output rebounds to 264,000 b/d in October: CAS

Crude oil production from the Neutral Zone shared by Saudi Arabia and Kuwait rebounded to 264,000 b/d in October, the second highest this year, following the restart of the Khafji oil field the previous month, with almost half of the volume heading to China.

Production from the zone fell to 180,000 b/d in September after the offshore Khafji field was halted due to a fire on Aug. 10, resuming in early September following repair work.

Exports to China reached 117,000 b/d in October, up from 65,000 b/d in September and more than doubling for the year-to-date, according to S&P Global Commodities at Sea shipping tracker.

Looking ahead however, China's purchases from the Neutral Zone could fall back as "prices are high" relative to other crudes available in the market, a buyer who took a shipment from Khafji told S&P Global Commodity Insights.

Saudi Arabia and Kuwait -- which originally agreed in 1970 to co-manage and share crude production from the zone equally -- have been looking to boost output and production capacity in the area, also known as the Divided Zone, following the resumption of work in the area.

Crude output from the Neutral Zone is around half of the approximately 500,000 b/d it averaged prior to a dispute between the two countries which resulted in a shut-in of production between 2015 and 2020.

A source with knowledge of Neutral Zone operations said overall production could hit 300,000 b/d by the end of next year. Production reached a high of 272,000 b/d in March this year, according to CAS data.

Restoring production capacity in the zone, which comprises the Wafra field and Khafji oil fields operated by Chevron and Aramco Gulf Operations Company respectively, is likely to take some time given the massive infrastructure overhaul required.

The challenges of raising output from Wafra are compounded by the ongoing transfer of facilities to the Khafji operational area, as part of the agreement reached by Saudi Arabia and Kuwait to resume operations.

"Our efforts are focused on transforming our facilities to have farm tanks and pipelines," a source close to the development said.

Under the agreement, all facilities must be moved to Khafji within five years. However, two years have already elapsed without significant development, the source said, citing the need build schools, hospitals, pipelines, storage tanks and perhaps even an export terminal.

Restoration of production capacity to 500,000-600,000 b/d can "only happen after five years", the source added.

Chevron and AGOC could not be immediately reached for comments.