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U.S. oil prices closed well off session lows Monday after a workers' strike in Kuwait slashed the country's oil output by more than half, offsetting worries about a scuttled plan by major oil producers to freeze production.

The strike cut more than 60 percent Kuwait's crude output, lending support to price benchmarks such as Brent and Dubai. Supply of refined oil product from the country also tightened due to scaled-back refinery runs and lower fuel exports.

Brent tumbled as much as 7 percent earlier on Monday after oil majors from the Organization of the Petroleum Exporting Countries and non-OPEC Russia failed to reach agreement on a plan to freeze output.

Venezuelan Petroleum Minister Eulogio del Pino arrives for the oil producers' meeting in the Qatari capital Doha, on April 17, 2016. Countries failed to reach an agreement to freeze output at January levels, which sent oil prices tumbling.
Karim Jaafar | AFP | Getty Images

The producers had gathered in Qatar, Doha at the weekend for what was expected to be the rubber-stamping of a deal to stabilize output at January levels until October. The deal crumbled when OPEC heavyweight Saudi Arabia demanded Iran join the plan, despite Tehran's repeated assertions it would not.

"The material loss in production from the Kuwait strike has helped the oil market forget about the farce from Doha," said Matt Smith, director of commodity research at the New York-headquartered Clipperdata.

Global benchmark Brent was down 24 cents at $42.86. It had fallen $3 earlier in the session.

U.S. crude settled 58 cents lower, or 1.4 percent, at $39.78, after sliding to $37.61 at the day's low.

Brent's premium versus WTI was at its widest in nearly two months.

While fallout from the Doha plan could weigh on a nascent recovery in oil prices, the market may not tumble as much as it did earlier this year, when Brent hit 12-year lows of around $27 in late January, some analysts said.

"Gradually declining non-OPEC production as well as planned maintenance in the face of resilient oil demand in Q1 have recently pointed to improving oil fundamentals," analysts at Goldman Sachs said in a note, referring to the first quarter.

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A weakening U.S. dollar and the mostly steady climb in global equities since February was supportive to oil too, traders said. Supply disruptions in OPEC member Nigeria also helped underpin prices.

"While a few forecasters may be dusting off some old $20 WTI expectations as a result of the Doha outcome, we expect solid support in nearby WTI at the $35 mark," Jim Ritterbusch at Chicago oil consultancy Ritterbusch & Associates said.

WTI traded off Monday's lows after data from market intelligence firm Genscape showed crude inventories at the Cushing, Oklahoma delivery point for U.S. crude futures falling by nearly 860,000 barrels during the week to April 15, traders who saw the data said.

On Monday, Iran urged other oil producers to continue efforts to prop up prices, but insisted it was justified in not yet freezing its own output following the lifting of sanctions in January.

The deal's collapse revived some fears that government-controlled producers will ramp up their battle for market share by offering ever-steeper discounts.

Morgan Stanley said the failure sparked "a growing risk of higher OPEC supply," especially as Saudi Arabia threatened it could hike output following the failed deal.

A villager carries bottles of petrol oil at a village in Hulu Langat, outside Kuala Lumpur on April 18, 2016. Oil prices plunged on April 18 after the world's top producers failed to reach an agreement on capping output aimed at easing a global supply glut, sparking fears it could set off another round of price.
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Analysts pointed to the ongoing tension between Saudi Arabia and Iran as a key reason oil producers failed to reach a deal.

The "meeting exposed that the heightening geopolitical tension between Saudi Arabia and Iran continues to transcend into the oil market," analysts at Barclays said in a note, adding that it hampered "OPEC representatives' ability to save face with even a simple, vague agreement to do what they had planned to do anyway for the next couple of months."

— staff contributed to this report.