Kuwait Cuts Oil and Refining Output as Hormuz Stays Blocked


JPMorgan
JPMorgan

Kuwait, OPEC’s fifth-biggest producer, cut oil and refinery production following the near-halt of shipping traffic through the Strait of Hormuz, the latest in a string of output reductions hitting some of the world’s biggest energy producers.

The cuts follow the “ongoing aggression by the Islamic Republic of Iran against the state of Kuwait, including Iranian threats against safe passage of ships through the Strait of Hormuz,” Kuwait Petroleum Corp. said in a statement.

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The cutback started with about 100,000 barrels a day as of early Saturday and is expected to almost triple on Sunday, with further gradual reductions depending on storage levels and the status of Hormuz, a person with direct knowledge of the plan said, asking not to be named because the details are private.

The war in the Middle East has brought maritime traffic through Hormuz to a virtual standstill, clogging up exports and helping drive oil prices in London to the highest close in more than two years at almost $93 a barrel. Iraq started holding back production earlier this week as storage tanks started filling up, while Saudi Arabia shut its biggest refinery and Qatar closed the world’s largest liquefied natural gas export plant after drone attacks.

Kuwait Petroleum declared force majeure — a legal clause allowing a company not to fulfill contractual obligations because of circumstances outside its control — on sales of oil and refinery products, according to a notice seen by Bloomberg.

The country produced about 2.57 million barrels a day of oil in January, according to data compiled by Bloomberg. The only route out for the supply is through the Strait of Hormuz. Saudi Arabia, the biggest producer in the region, has diverted some of its crude away from this route toward Yanbu in the Red Sea.

Kuwait had earlier begun lowering processing rates at its refineries because of the fuller tanks. The nation’s plant — Al-Zour, Mina Al-Ahmadi and Mina Abdullah — have a combined capacity of about 1.4 million barrels a day. Al-Zour is one of the biggest oil-processing facilities in the Middle East.

The country, like its Gulf neighbors, has been heavily targeted by Iranian missiles and drones in an expanding war in the region. The US embassy has been hit multiple times, as well as the Ali Al-Salem air base — which houses American troops — and the country’s main passenger airport.



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