US oil spikes 3.27 pct, to close at $41.08, amid Kuwaiti workers strike

Futures Now: Oil rebounds
Futures Now: Oil rebounds
Kuwait strike fuels oil rally
Kuwait strike fuels oil rally
Higher $40s ahead for oil: BofA
Higher $40s ahead for oil: BofA

U.S oil prices rose more than 3 percent on Tuesday after a strike by workers in Kuwait nearly halved the OPEC member's crude production, overshadowing bearish sentiment after Sunday's failure by producers to agree to freeze output levels.

The June WTI contract settled at a new 2016, up 3.1 percent, at $42.47 a barrel.

Post-settlement, crude retreated after API data reported a gain of 3.1 million barrels. Analysts had expected a gain of 640,000 barrels, according to StreetAccount.

Thousands of Kuwaiti oil workers downed tools for a third day on Tuesday to protest against planned public sector pay reform, cutting crude output to 1.5 million barrels per day (bpd), according to an oil spokesman cited by news agency KUNA.

That is little more than half of Kuwait's average output of 2.8 million bpd in March.

Reports of power outages leading to output declines of about 200,000 bpd in Venezuela and a pipeline fire in Nigeria that may have cut production by 400,000 bpd, along with the upcoming refinery maintenance season boosted the rebalancing of market and was supporting prices, traders said.

Kuwaiti oil workers arrive at the union headquarter in Al-Ahmadi on April 17, 2016 to protest.
Kuwait strike halts oil downspin—but will it last?
Men work at Al-Sheiba oil refinery in the southern Iraq city of Basra, April 17, 2016.
Why Doha no-deal is actually great for oil prices

"The Kuwait strike in particular is a major factor. It was a bolt out of the blue in terms of how much oil came off the market so quickly," said John Kilduff, partner at Again Capital, a New York energy hedge fund.

"Usually these things have a ramp down period but this seems to be able to flick a switch...It's supportive for the market for now," he said.

Brent crude futures, the global benchmark, were up $1.13, or 2.63 percent, at $44.04 a barrel, after rising as high as $44.50.

U.S. crude futures for May delivery settled 3.27 percent higher, or $1.30, at $41.08, a new 2016 high, but still off a session peak of $41.53.

The rally was catalyzed by the index crossing a key level that triggered buying in oil and across commodities.

Analysts, however, said Kuwait's disruption would likely be brief and investors would soon focus back on the market's oversupply given the failure of major exporters on Sunday to agree to freeze output to avoid worsening the glut.

"In the coming days oil production is likely to partially recover from its initial drop as non-striking staff are redistributed and inventories drawn upon, avoiding a force majeure on loadings," policy risk consultancy Eurasia Group said.

A worker checks the valve of an oil pipe at an oil field near the village of Nikolo-Berezovka, Russia.
Russia may raise 2016 oil output

A deal to freeze oil output by OPEC and non-OPEC producers fell apart at the weekend meeting in Doha after Saudi Arabia demanded Iran join in despite calls on Riyadh to save the agreement and help prop up crude prices.

Iran has repeatedly said it would prioritize regaining pre-sanctions crude output levels over discussing an output freeze.

Tehran's crude oil exports have risen to around 1.75 million bpd so far in April, according to an industry source and shipping data. Exports averaged about 1.6 million bpd in March

Other exporters who participated in the failed Doha talks have already shifted attention back to their own interests. Russia and Venezuela have indicated they hope to increase output this year.