- Output from OPEC producer fell 60% before partial recovery
- Futures extended gains as dollar falls, S&P 500 climbs
Oil rose the first time in five days as a strike in Kuwait cut output from OPEC’s fourth-biggest member and the tumbling dollar bolstered investor demand for commodities.
Futures climbed 3.3 percent in New York. The labor stoppage in Kuwait that initially slashed daily output by as much as 1.7 million barrels entered a third day. Prices extended gains as the dollar fell to a 10-month low and equities advanced. Oil slipped 1.4 percent Monday after the world’s biggest producers failed to reach a deal Sunday in Doha to limit supplies amid a global glut.
"Having a strike in one of the the most stable, better-run producers comes as a big surprise," said Francisco Blanch, head of commodities at Bank of America Merrill Lynch in New York. "The market viewed the sell off as a buying opportunity. The market is moving from a surplus to a deficit in the second half of the year."
The Doha talks collapsed after Saudi Arabia insisted it wouldn’t restrain output without commitments from other major producers including Iran, which has ruled out freezing for now. That’s also raised concern that the Middle East producers may boost supply amid an intensifying battle for market share. Meanwhile, the “substantial impact” of Kuwaiti production cuts has added to other global disruptions, according to industry consultants FGE.
West Texas Intermediate for May delivery, which expires Wednesday, rose $1.30 to settle at $41.08 a barrel on the New York Mercantile Exchange. Prices on Monday fell as much as 6.8 percent before settling at $39.78. Total volume traded was 13 percent above the 100-day average at 4:45 p.m. The more-active June contract advanced $1.28 to $42.47 a barrel.
Futures were little changed from the settlement when the American Petroleum Institute was said to report U.S. crude supplies rose 3.1 million barrels last week. WTI traded at $41.06 at 4:45 p.m.
Brent crude for June settlement climbed $1.12, or 2.6 percent, to $44.03 a barrel on the London-based ICE Futures Europe exchange. The global benchmark closed at a $1.56 premium to June WTI. The front contract traded at a premium, or backwardation, to the second month for a fourth day, of 18 cents.
The dollar slipped to the lowest level since June against its major peers after a government report showed new-home construction in the U.S. slipped more than projected in March, clouding Federal Reserve plans to boost interest rates. The Bloomberg Dollar Spot Index fell 0.6 percent, bolstering demand for commodities priced in the currency.
"The dollar is very weak and the S&P is up, so all the correlations are working for us today," said Bob Yawger, director of the futures division at Mizuho Securities USA in New York. "We were already up on the Kuwaiti strike. They seem to be still making deliveries but if we hear of a force majeure it will be off to the races."
Kuwait’s crude output, which plunged 60 percent to about 1.1 million barrels a day after the strike began, has edged higher to 1.5 million a day as the state oil company brings some production back on line. Workers are protesting pay and benefit cuts as Middle Eastern crude exporters, reeling from lower oil income, curb subsidies and government handouts. It’s the first walkout of oil workers in Kuwait since at least 1996, Middle East Economic Digest said.
"The chatter is all about the Kuwaiti strike and not the failure at Doha," said Gene McGillian, a senior analyst and broker at Tradition Energy in Stamford, Connecticut. "The drop in Kuwait output together with other disruptions and the expected decline in American production is adding a certain buoyancy to the market."
Trading in oil options surged on Monday after the breakdown of the Doha discussions, according to data compiled by Bloomberg. Transactions of “put” contracts that allow traders to sell June Brent futures at $40 a barrel, the most widely traded option of the North Sea grade, climbed by 47 percent to 17,156 lots, the data show.
Fuel futures jumped after a report that Royal Dutch Shell Plc shut a catalytic cracker at its Deer Park, Texas, refinery. The refinery has a 316,600 barrel-a-day capacity, according to data compiled by Bloomberg.
Gasoline for May delivery climbed 3 percent to settle at $1.4799 a gallon. Diesel for May delivery increased 2.2 percent to $1.2632.
Other oil-market news:
- U.S. crude inventories probably rose by 3 million barrels in the week ended April 15, according to a Bloomberg survey conducted before an Energy Information Administration report Wednesday.
- Refinery utilization was probably unchanged at 89.2 percent, while crude stockpiles at Cushing, Oklahoma, rose 70,000 barrels, the survey showed.
- Gasoline stockpiles probably dropped 1.75 million barrels, while distillate fuel stockpiles were unchanged.