Oil prices start the day down as Kuwaiti workers end strike
Oil workers in Kuwait ended a three-day strike today that lent support to oil prices earlier this week following the failure of a mixed group of OPEC and non-OPEC producers to come to an agreement on a production freeze Sunday. The strike saw production in OPEC’s fourth-largest producer fall to 1.1 MMBOPD from 2.8 MMBOPD, reports The Wall Street Journal, helping keep prices near $40 per barrel.
The workers initiated the strike over concerns of pay cuts and layoffs as part of a broader planned public-sector reform. Kuwait’s acting oil minister, Anas al-Saleh, ruled out negotiations with the unions until they ended their strike.
“The goal in going on strike was to send a clear message,” the Union of Petroleum and Petrochemical Workers said in the statement as the workers returned to their posts. “The workers reiterated in their action their role …” in the economy, the union said.
Kuwait will boost output to 3 MMBOPD in the next three days, Kuwait Petroleum Corp. said. Oil refineries continue to operate at about 60% capacity, or 520 MBOPD, even as the strike ends, according to reports from Bloomberg.
Market analysts worried that the strike would only provide temporary support to prices, with oil dropping a leg lower once production resumed at full force in Kuwait. When markets opened today, both international and U.S. crude oil benchmarks fell by more than a dollar on the news. WTI opened today at $41.08 and went as low as $39.85 following the news, while Brent opened at $44.04 before going to $42.84 as concerns over resumed production in Kuwait hit the markets.
Prices rebound as DOE release U.S. production numbers
The decline in oil prices this morning did not last long, however, as information on crude stocks and production from the U.S. Department of Energy gave markets some good news. Information from the DOE today showed U.S. crude oil production continued to decline this week as low oil prices make it uneconomical to keep output above 9 MMBOPD.
According to information from the DOE, U.S. crude oil production fell 24 MBOPD this week to 8.95 MMBOPD. While the fall in production week-over-week was relatively small, markets took the news as a good sign that fundamentals were continuing to rebalance.
Crude oil inventories continued to grow this week, albeit slower than expected. The DOE reported a build of 2.1 MMBO compared to an average economist estimate of 2.3 MMBO.
“A lasting reduction in the oversupply can be expected in the second half of the year thanks to a combination of declining U.S. oil production and seasonally stronger demand,” Commerzbank said in a note.
“The way the market seems to want to pick out the bullish factors in all the news, this could be enough to give it support,” said Gene McGillian, an analyst at Tradition Energy. “But I’m a little reluctant to get all bulled-up.”
