Oil prices rise as Kuwait oil strike diminishes supply

Latest Update: April 19, 2016 | 233 Views
Oil prices

SINGAPORE: Oil prices rose on Tuesday as a strike in Kuwait cut huge amounts of crude out of the supply chain, but analysts said the disruption would be short-lived and that markets would soon refocus on a global supply glut.

Kuwait’s crude output fell to 1.1 million barrels per day (bpd) on Sunday, from 2.8 million bpd in March as thousands of workers went on strike.

Brent crude was at $43.25 a barrel at 0651 GMT, 34 cents above their previous close. U.S. West Texas Intermediate (WTI) futures were up 33 cents at $40.11 a barrel.

Shipping data on Thomson Reuters Eikon, however, shows that Kuwait has loaded a 2 million barrel crude tanker despite the strike, and that three more vessels are currently waiting to take on crude.

Kuwaiti officials said they would be able to hike output, despite the open-ended strike, by using crude from inventory and by taking legal action against unions.

Also, analysts expect the disruption to be brief and markets to soon refocus on the global glut given the failure of major exporters to agree on an output freeze at their Sunday meet.

Additionally, the government is likely to compromise with the strikers to fully resume exports, some analysts said.

“Sensitive to union pressure, the government is likely to compromise on most of striking oil workers’ pay demands,” policy risk consultancy Eurasia Group said.

“In the coming days oil production is likely to partially recover from its initial drop as non-striking staff is redistributed and inventories drawn upon, avoiding a force majeure on loadings,” the Eurasia Group added.

Once Kuwait’s exports fully resume, traders said the market would again focus on a global glut that sees 1 million to 2 million barrels of crude pumped every day in excess of demand.

A deal to freeze oil output by OPEC and non-OPEC producers fell apart on Sunday after Saudi Arabia demanded that Iran join in despite calls on Riyadh to save the agreement and help prop up crude prices.

Analysts said the failed Doha agreement was largely a blow to market sentiment rather than fundamentals, which remain weak but are improving as output drops, especially in North and South America.

“The lack of a freeze agreement, while devastating for sentiment, does not impact oil balances, which are already on the mend,” Energy Aspects said, although adding that a full rebalancing was unlikely before late 2016 or early 2017.

Other analysts said prices might stay low for some time.

“It is nearly impossible to influence the oil price long-term by freezing production as unconventional oil and gas and alternative energy may enter the market to bring down the price,” said Vivien Yang, a Hong Kong-based partner at law firm Simmons & Simmons, which specializes in the oil and gas sector.



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