Crude prices drop as Kuwait strike ends

Brent crude slips more than 2 per cent as Kuwait workers end a three-day strike.

A general view taken on April 16, 2016 shows the Shuaiba oil refinery south of Kuwait City. Kuwaiti oil workers plan to go on strike on April 17, 2016 in protest to what they call the government's plan to cut their annual benefits and bonuses. / AFP PHOTO / YASSER AL-ZAYYAT

Oil prices tumbled more than 2 per cent in offshore trade on Wednesday after oil workers in Kuwait ended a three-day strike that had kept prices afloat after the failure of oil producing nations, meeting in Doha on Sunday, to agree to freeze output.

On the New York Mercantile Exchange, light, sweet crude futures for delivery in May traded at $US40.09 a barrel, down 2.41 per cent. June Brent crude on London’s ICE Futures exchange was trading at $US43.13 a barrel down 2.04 per cent.

The strike had reduced Kuwait’s daily production from 3 million barrels to around 1.1 million barrels. This was helping to tighten the physical crude market, along with other supply disruptions in northern Iraq, Nigeria and the North Sea, curtailing global output by 750,000 barrels a day or around half the rate at which world supply is estimated to be growing.

The end of the strike “removes one of the key supports that allowed prices to recover easily after the disappointing outcome of the Doha talks,” Citi Futures analyst Tim Evans said.

Despite the lack of a deal in Doha, price falls had been limited earlier this week because the market shifted focus to the supply disruptions, viewing that the outages would kick-start the market’s journey into rebalance. But Wednesday’s price movements suggest that the reality of oversupply is back at the forefront.

Further ahead, the market is expected to rebalance later this year as demand begins to catch up with supply.

“A lasting reduction in the oversupply can be expected in the second half of the year thanks to a combination of declining US oil production and seasonally stronger demand,” Commerzbank said in a note.

But preliminary data from the American Petroleum Institute showed US crude stocks to have grown by around 3.1 million barrels last week, suggesting that in the short-term, price upside could be limited.

More authoritative data will be released by the US Department of Energy later on Wednesday. Analysts surveyed by The Wall Street Journal expect it to show a more conservative rise in crude inventories, by 2 million barrels.

Nymex reformulated gasoline blendstock--the benchmark gasoline contract-- was down 1.57 per cent to $US1.46 a gallon. ICE gasoil changed hands at $US371.25 a metric ton, down 1.92 per cent from the previous settlement.

Dow Jones newswires