Kuwait cuts oil production due to Strait of Hormuz closure
Kuwait said on Saturday it was cutting oil production and refining because tankers could not pass through the Persian Gulf due to threats from Iran.
The Arab monarchy did not say how many barrels of oil per day it was cutting, but described the production cut as a precautionary measure “to be reviewed as the situation evolves.”
Kuwait is OPEC’s fifth largest oil producer. It produced about 2.6 million barrels per day in January.
state owned Kuwait Oil Company It said it “remains fully prepared to restore production levels when conditions permit.”
Oil prices are up nearly 35% this week as the Iran war causes a major disruption to global energy supplies. Tankers stopped transiting the critical Strait of Hormuz because they feared their ships would be attacked by Iran.
Gulf Arab oil producers such as Kuwait export their barrels through the Bosphorus. The narrow waterway is the only way to enter or exit the Persian Gulf. Approximately 20% of world oil consumption is exported through the Bosphorus.
Barrels of oil are piling up in the Middle East and there is nowhere to go because the tankers are not moving. Gulf Arab countries are forced to reduce production when they run out of space to store barrels. Iraqi officials announced that Iraq has already cut off 1.5 million barrels of oil per day because it has run out of storage space. he told Reuters on Tuesday.
“The market is shifting from pricing in pure geopolitical risks to grappling with tangible operational disruptions,” Natasha Kaneva, head of global commodities research at JPMorgan, told clients in a note on Friday.
In a note published last Sunday, Kaneva said that if the US-Iran war continues for more than three weeks, Gulf Arab countries will exhaust their storage capacity and stop oil production. He said this would push global benchmark Brent oil prices above $100 per barrel.
JPMorgan estimates that production cuts could exceed 4 million barrels per day by the end of next week if the Strait of Hormuz remains closed.
On Friday, crude oil futures posted the biggest weekly gain in trading history. Brent futures rose 8.52%, or $7.28, to settle at $92.69 a barrel. West Texas Intermediate futures rose 12.21%, or $9.89, to close at $90.90 a barrel.
US crude oil gained 35.63%, the biggest weekly gain in the history of futures contracts since 1983. Brent, on the other hand, achieved its biggest weekly increase since April 2020 with 28%.
The Iran war also disrupted the world’s natural gas supply. Qatar stopped producing liquefied natural gas on Monday due to attacks by Iran. Approximately 20% of world LNG exports come from Qatar.
LNG is a type of natural gas that is cooled in liquid form so that it can be loaded onto tankers and exported around the world. Natural gas is used in electricity generation and home heating.
