Kuwait May Dump Oil on Market : OPEC Member Issues Threat in Dispute With Venezuela

Kuwait served notice Wednesday that it will dump as much as 300,000 more barrels of oil per day on the market next winter if Venezuela prevails in one of OPEC’s more arcane debates.

Kuwait’s close ally, Saudi Arabia, was believed to have made a similar warning behind closed doors as this week’s rocky OPEC meeting came to a close. Together, the two Persian Gulf nations could flood the oil markets with 1 million additional barrels of oil merely by changing their definition of crude oil.

The assertion by Kuwait Oil Minister Sheik Ali al Khalifa al Sabah was part of the bargaining in what is a side issue in deliberations by the Organization of Petroleum Exporting Countries. It remains to be seen whether the Saudis and Kuwait would take such action over the nettlesome but minor issue.

Saudis Wield Power

However, it was a reminder of the power wielded by the Saudi-led minority within OPEC. The oil-rich Saudis and Kuwaitis can drive prices down overnight, an ever-present threat to the poorer, more populous nations in the cartel which can ill afford a repeat of the price collapse of 1986.

Ali made the comments in a lengthy post-mortem for reporters of the recently concluded OPEC meeting. It ended Tuesday with a shaky agreement to continue the existing oil quota system until the end of the year.

One of several problems that went unresolved at the meeting was agreeing on the distinction between crude oil and similar, but lighter, hydrocarbons called condensates. The lighter product is exempt from OPEC’s production ceilings and can be produced at will, though it can compete with crude oil.

Several countries, especially Venezuela, have defined as condensates a certain grade of products that other countries call crude oil. Such condensates are being produced outside the quota system, thus contributing to today’s weakness in oil prices.

Question for Kuwait

Ali said that if Kuwait adopted the Venezuelan definition of condensates, it could effectively boost its oil production by 300,000 barrels per day, or about 30%.

“We would be getting what the others are getting,” he said.

But the minister said as many as 11 of the 13 nations support Kuwait’s stricter definitions of crude and condensates, and voiced confidence that his country’s view will prevail.

Ali also insisted that the just-concluded meeting wasn’t as rancorous as most observers said. And he contended that the agreement to roll over the current production ceiling of 15.1 million barrels per day for 12 of the 13 member nations will support prices for the rest of the year in the $15 to $17 per barrel range. Economists are divided on this question, some forecasting weaker prices.

“I honestly believe that demand is much higher than the (International Energy Agency) predicts and definitely higher than the oil companies or predicting,” he said.