Kuwait oil strike lifts crude market, but outlook weak

Oil prices edged up in early trading on Tuesday as an oil worker strike in Kuwait cut huge amounts of crude out of the supply chain.

But analysts warned that the disruption would be short-lived and that markets would soon refocus on a global supply glut following the failure on Sunday by major exporters to rein in on oversupply.

A strike in Kuwait by oil workers has cut the country’s production to just 1.1 million barrels per day (bpd), down from 2.8 million bpd usually.

Brent crude futures were at $43.04 a barrel at 0135 GMT, 13 cents above their last close.

U.S. West Texas Intermediate (WTI) futures were up 8 cents at $39.86 a barrel.

Kuwaiti officials said they would be able to increase output despite the open-ended strike, by using crude from inventory and by taking legal action against unions.

Analysts said the government would also likely compromise with the strikers to get exports up and running again.

“Sensitive to union pressure, the government is likely to compromise on most of striking oil workers’ pay demands,” policy risk consultancy Eurasia Group said.

“In the coming days oil production is likely to partially recover from its initial drop as non-striking staff is redistributed and inventories drawn upon, avoiding a force majeure on loadings,” it added.

Once Kuwait’s exports fully resume, traders said the market would again focus on a global glut that sees 1 to 2 million barrels of crude pumped every day in excess of demand after producers failed to agree on output targets during a weekend meeting in Qatar’s capital, Doha.

Unabated output meant long-term oil prices could remain low, analysts said.

“It is nearly impossible to influence the oil price long-term by freezing production as unconventional oil and gas and alternative energy may enter the market to bring down the price,” said Vivien Yang, partner at law firm Simmons & Simmons in Hong Kong.

“The recent failed OPEC attempt to freeze production may cause grief from oil producers, but in reality even if it was successful its long term effect is doubtful.”

Many in the market expected oil prices remain at a level close to the historical average at around $30 to $40 per barrel, Yang said.

(Reporting by Henning Gloystein; Editing by Richard Pullin)

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