OPEC’s strategy to defend market share rather than target a price is working as crude gains amid rising demand and declining output from producers including U.S. shale wells, Kuwait’s acting oil minister said.
Oil will end the year at $50 a barrel and the market will rebalance in the third or fourth quarter, Anas Al-Saleh said in an interview Wednesday in Kuwait City. Kuwait will stick to OPEC’s strategy of pumping to win customers, he said. Demand is growing and about 3 million barrels of daily crude supply have been lost to interruptions or because some producers have been priced out of the market, he said.
OPEC’s market share “theory has been working well,” Al-Saleh, who is also finance minister and deputy prime minister, said. “Now we see better prices in the market, demand has been increasing – part of it is outages of production in Canada, Libya, Nigeria and the shale oil.”
Oil prices have fallen by more than 35 percent since the November 2014 meeting of the Organization of Petroleum Exporting Countries, when Kuwait joined Saudi Arabia in leading the producers’ group to shift from supporting prices to defending sales against higher-cost output including U.S. shale. The decline in prices and oil revenue strained Kuwait’s official budget. Benchmark Brent crude, which has rebounded from a 12-year low in January, slipped as much as 2.7 percent to $47.59 a barrel on Thursday and traded at $47.79 at 12:02 p.m. in London.
Persian Gulf oil producers are cutting energy subsidies and scaling back some spending. A strike last month by Kuwaiti oil workers slashed crude output in half as thousands of employees stayed away from their jobs to protest a cut in benefits.
“We are sticking to the market share strategy,” Al-Saleh said. “We’re planning our production and we’re investing heavily, heavily, heavily in our industry.”
OPEC meets June 2 in Vienna, in a gathering at which Al-Saleh sees producers continuing discussions about the strategy. Talks between OPEC and other major producers to freeze output to curb a global glut failed last month after Saudi Arabia and allies in the Gulf Arab region wouldn’t agree to any accord unless everyone joined, including regional rival Iran. For any output cap to work, “everybody has to freeze,” Al-Saleh said. He didn’t say what he expects OPEC to do at the meeting.
“If in the June meeting the market price is as is, probably you will see a good understanding and maybe dialog between members of OPEC,” he said.
Kuwait, OPEC’s fifth-largest oil producer, is pumping 3 million barrels a day and will boost output to 4 million barrels a day by 2020, Al-Saleh said. The government plans to spend $60 billion on upstream projects in the country through 2021, excluding petrochemicals, joint ventures and projects abroad, he said.
The country is in “advanced talks” to build an oil refinery in Oman, has ongoing discussions to build two crude-processing plants in China and India and will open a petrochemical facility with SK Holdings Co. Ltd. in South Korea within two weeks, he said. Kuwait isn’t planning to sell stakes in Kuwait Petroleum Corp., but is thinking of offering shares in service companies under the state producer, known as KPC, Al-Saleh said.
Al-Saleh said Kuwait’s crude production will keep increasing this year, though he declined to give a figure as some projects will undergo maintenance. Production in two border oil fields shared with Saudi Arabia is due to restart, but not in 2016, he said. Output at Wafra and Khafji has been halted because of environmental and other concerns.
Output will climb to 3.15 million barrels a day by June, Haitham Al-Ghais, market research manager at government-owned Kuwait Petroleum Corp., said in an April 25 interview at a conference in Abu Dhabi in the United Arab Emirates.
KPC plans to build a 615,000 barrel-a-day refinery, a petrochemical plant and a receiving terminal for liquefied natural gas at Al Zour on the Persian Gulf coast, Ahmad Al-Jemaz, a deputy chief executive officer at the state refinery unit, said in February. The Al Zour refinery is set to start in November 2019, with
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