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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