EMEA News
"Out of the Blue" Output Reductions Cause Oil Prices to Soar
Just a day after the collapse of the April 17 Doha talks to curb oil output caused prices to fall over 5 percent in early Asian trade, oil jumped over 3 percent on Tuesday due to a strike of Kuwait oil workers that cut the country's total crude production in half, media reports.
Brent crude futures were up $1.12 to $44.03 per barrel, and U.S. crude settled $1.30 higher at $41.08.
The Kuwait strike, now in its third day, caused output to plummet to 1.5 million barrels per day (bpd) from the daily average of 2.8 million barrels.
This follows Venezuela reporting output declines of about 200,000 bpd due to power outages and Nigeria's production reduced by 400,000 bpd due to a pipeline fire.
John Kilduff, partner at Again Capital, was surprised by the rapid turn of events. "It was a bolt out of the blue in terms of how much oil came off the market so quickly," he said.
"Usually these things have a ramp down period but this seems to be able to flick a switch ... It's supportive for the market for now."
Eurasia Group said that in coming days "oil production is likely to partially recover from its initial drop as non-striking staff are redistributed and inventories drawn upon, avoiding a force majeure on loadings."
Other analysts predict the Kuwait strike will be short-lived but warned that prices will be pressured again as the market refocuses on the failure of Organization of the Petroleum Exporting Countries members and some non-members to freeze output.
This is despite Michele Della Vigna, co-head of European Equity Research at Goldman Sachs, earning press coverage for stating that the failure of the talks is a good thing, because the market is recovering on its own and a deal would have only delayed it with "a self-defeating rally."
