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Half Of Kuwaiti Oil Production Offline After Massive Strike

While everyone is talking about the failure of the Doha negotiations, Kuwait has more than made up for OPEC’s failure all on its own.

Kuwait’s oil workers walked off the job this weekend, flexing their muscles over a pay dispute. The state-owned Kuwait Oil Company took to Twitter to report the damage done by the workers strike, announcing that oil production fell to 1.1 million barrels per day on Sunday, a catastrophic development considering it normally produces nearly 3 mb/d. Also, Kuwait Petroleum Corp., the state-owned refining company, said that its production of refined products dropped from 930,000 to 520,000 barrels per day on April 17.

It is unclear at this time how long production will remain offline, but the effect on the oil market from an outage for any extended period of time is hard to overstate. Related: Canada’s Oil Industry To See 62% Decline In Investment

The colossal outage comes on the same weekend that the Doha negotiations fell apart after Saudi Arabia took a hard line on Iran’s participation. Speculation about a production freeze helped bid up oil prices by around 50 percent between February and April, and the failure by OPEC and Russia to reach an agreement has led to a major sell off in crude oil prices.

However, Kuwait’s outage – again, if it lasts for any significant period of time – would have a much larger impact on global supplies than the production freeze deal, an agreement that would have only limited output to current levels of production. The participating countries are already producing close to their limits and had little scope to increase output to begin with, so there was almost no expectation that the freeze deal would have done much to address the supply glut. An outright production cut was never on the table. Related: Saudi Arabia Kills Doha Deal, Talks Fall Apart

The oil markets have been thrown into turmoil again, as Saudi Arabia returns to its strategy of fighting for market share.

On the other hand, Kuwait’s oil workers handed oil bulls a potentially massive silver-lining when they walked off the job, cutting more supply from global markets in an instant than the Doha agreement ever promised to.

By Charles Kennedy of Oilprice.com

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  • Stu from New Jersey on April 18 2016 said:
    3 cheers for the Kuwaiti oil workers!
  • Natronic on April 18 2016 said:
    Either way it doesn't matter. If we were producing 1Mbpd more than necessary. Then 600,000bpd of USA went offline but Iran is now doing 2Mbpd as they run down their floating storage. Now Kuwait is producing 400,000bpd less. That still gives us a surplus of 500,000bpd. The thing that has kept the prices up is more storage has come online quicker than expected. Oil is in trouble and more than 1/2 of all USA oil companies will go out of business this year if prices stay below $40.
  • GregSS on April 18 2016 said:
    Natronic: Go out of business, or just reorganize under Chapter 11?
  • mchentrp on April 18 2016 said:
    Good question, GregSS! File BK, pay off debt for 10 cents on the dollar, reduce union benefits (if there are any) and carry on with a much smaller opex. All that debt that was leveraged by proven resources, in the ground or storage, just goes away!
  • Marvin on April 19 2016 said:
    Yeah cheer them on, but get the goons when union workers in North America want a bigger share of the pie.

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