Kuwait Suggests OPEC Can Handle Extra U.S. Oil Output as Keystone Approval is Granted

With another stroke of the pen, U.S. president Donald Trump has kept a top campaign promise by approving development of the 800,000 barrel per day (bpd) northern section of  TransCanada Corp's Keystone XL pipeline.

And while the development means more North American crude could contribute to the global glut that the Organization of the Petroleum Exporting Countries (OPEC) is trying to keep a lid on via its two month old oil reduction strategy, the prospect presumably doesn't bother one key OPEC member.

Speaking on Bloomberg television, Issam Almarzooq, oil minister for Kuwait, conceded that he and his colleagues initially hoped for a gradual decline in U.S. inventories; but when asked what he thought of the U.S. shale recovery and the chance it might recover even further, he adopted a diplomatic tone and suggested that the OPEC cutbacks were enough to solve the problem.

Referring to the inventories caused by shale, he said, "I think we are on the way of consuming that excess storage," and he added that if a price range of $50-$55 can be achieved this year, "I think we will be in a good position."

Almarzooq also defended the highly-criticized efficacy of the OPEC cutbacks, pointing out that market prices have fallen "not because there is no conformity, but because the storage has not moved yet....we will see differences in the third quarter, and probably later in the second quarter."

For his part, Bart Melek, head of commodities strategy at TD Securities, thinks the approval of Keystone will have minimal impact on the market; he told CNBC, "Really we're just talking incremental here, it's not really moving the needle either way.

"It just assures some of the plans to expend the [oil] sands continues and we don't have to use trains; they're expensive, and it's not an efficient way to move crude."

Still, Andrew Lipow, president of Lipow Oil Associates, points out that "If we get additional quantities of heavy Canadian crude, which is preferred by many refineries in the U.S., we might turn out to sell more quantities of [U.S.] light, sweet crude to the rest of the world."

To which John Kilduff, founding partner of Again Capital, added, "All this additional crude oil should keep our input costs lower, which will make our refined products even more competitive."

The Canadian sands is expected to expand production to 5.3 million bpd by 2022, from 4.5 million bpd last year.

Kuwait is not the only OPEC member to react diplomatically to gung ho oil production under the Trump administration: last month, Khalid al-Falih, minister of energy, industry and mineral resources for Saudi Arabia, surprised many observers when he declared that "President Trump has policies which are good for the oil industry, and I think we have to acknowledge it."