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Kuwait oil strike to support Brent, Dubai, reduce fuel exports: analysts
[SINGAPORE] A workers' strike in Kuwait that has cut its crude output by more than 60 per cent could support oil price benchmarks Brent and Dubai, and tighten oil product supplies as the country scales back refinery runs and exports, analysts said on Monday.
Opec producer Kuwait said on Sunday it has cut crude output to 1.1 million barrels per day (bpd) from normal production of about 3 million bpd. Output at its state refiner had already fallen to 520,000 bpd from 930,000 bpd before the work stoppage started on Sunday.
The production cuts come as a counterpoint to a failure among producers to coordinate output at Sunday's Doha talks. That inability to reach an agreement dragged global oil futures down by 5 per cent on Monday.
Although the Kuwaiti strike is likely to be short-lived, other Opec and non-Opec output disruptions or production declines such as in Nigeria, Venezuela and the United States, as well as refiner maintenance amid steady demand in the first quarter have pointed to improving oil fundamentals, Goldman Sachs analysts said in a note on Monday.
"This leaves the market reaction early this week as uncertain, with risks skewed to a sharp sell-off only should the Kuwait disruption prove much smaller than suggested so far,"Goldman said.
Energy Aspects analyst Virendra Chauhan told Reuters the loss of Kuwaiti crude is estimated at 250,000-500,000 bpd across the month or between 500,000 to 1 million bpd for two weeks. "This will be a bullish prompt for Brent and Dubai (monthly) spreads," he said.
Kuwait exports most of its crude to Asia, shipping an average 1.54 million bpd in the first three months this year, slightly lower than 1.64 million bpd from the same period a year ago, Thomson Reuters data showed.
The prompt June-July Brent spread LCOc1-LCOc2 was at close to parity on Monday, staying in backwardation for a third straight session.
The front-month Dubai spread for May-June was at 9 cents a barrel in backwardation on Monday. Spot prices are higher than those in future months in backwardation, indicating a stronger prompt market.
Kuwait's crude output cut has also affected its refining output, which could lead to sharp drops in its fuel exports.
"The impact on middle distillates will be huge because they are a big exporter," Energy Aspects analyst Nevyn Nah said. "If the run cuts prolong, it may help balance the middle distillates market."
Kuwait's kerosene and diesel exports could fall by 190,000 bpd, Nah said, adding that its naphtha exports could drop by 90,000 bpd. Kuwait may also find itself importing fuel oil instead of exporting, he said.