This article originally appeared onZeroHedgeand was republished with permission.
Kuwait began cutting crude oil outputafter storage tank farms began filling up, as crude could no longer be loaded onto very large crude carriers and transported through the Strait of Hormuz, according toThe Wall Street Journal.
Sources say the OPEC founding member is now weighing broader reductions in crude production and refining, potentially limiting operations to only domestic demand, with a decision expected within days.
UBS analyst Nana Antiedu noted that Brent crude futures climbed to $91/bbl after WSJ released the report.
Data provider Kpler said it has seen indications that Kuwait has started to cut production, adding that the country would have to cut more output in the coming days, as storage would otherwise fill up in around 12 days.
Shutting in an oil well risks long-term damage to reservoir pressureand incurs high restart costs, usually making it a measure of last resort. Restarting production can take days or even weeks depending on the reservoir.
“Storage is limited in the Middle East, and the only fix to avoid tanks running over is to curb production,” UBS commodity analyst Giovanni Staunovo said. “The longer the strait stays closed, the more barrels of crude and refined products will be missing, leading to higher prices.”
Earlier in the day, Qatar’s energy minister, Saad al-Kaabi, told the FT that“Everybody who has not called for force majeure we expect will do so in the next few days if this continues. All exporters in the Gulf region will have to call a force majeure.”
Also, Iraq had already slashed oil production by half earlier this week, while Qatar shut gas liquefaction plants.
Brent crude futures surged above $91/bbl on Friday morning in New York.
Source: The Vigilant Fox
