Kuwait has started cutting output at some oil fields after running out of space to store accumulated crude, people familiar with the matter said, signaling a broader storage crisis that poses new risks to the global market.
The country, a founding member of the Organization of the Petroleum Exporting Countries (OPEC), is also discussing further curbs on production and refining capacity, reducing it to only the level needed to cover domestic consumption, the sources said. A decision on these broader cuts is expected within days.
Data provider Kpler said it has seen signs that Kuwait has begun to reduce production, adding that the country will be forced to reduce production even further in the coming days, as otherwise storage facilities would be full within about 12 days.
Shutting in an oil well risks long-term damage to reservoir pressure and incurs high costs to restart production, so it is usually considered a last resort. Restarting production can take anywhere from a few days to a few weeks, depending on the reservoir.
“Production will not all come back on the same day once exports become possible again,” said Giovanni Staunovo, commodities strategist at UBS.
About a fifth of global oil supply typically passes through the Strait of Hormuz every day, located between the Iranian island of Hormuz and the Omani enclave of Khasab.
With shipping at this strategic point paralyzed by the conflict with Iran, the region's largest oil producers are facing a race against time. Large storage facilities in Saudi Arabia and the United Arab Emirates are also filling up rapidly, and both countries are expected to reach their capacity limits in less than three weeks, according to Kpler.
Once storage tanks fill to capacity — a situation known in the oil industry as “tank tops” — producers face the technically and politically costly reality of halting production.
“Storage capacity is limited in the Middle East and the only way to avoid filling tanks is to reduce production,” Staunovo said. “The longer the strait remains closed, the more barrels of crude oil and refined products will be missing from the market, leading to higher prices.”
Oil prices have risen since the conflict began, with Brent crude, the global benchmark, trading around $89 a barrel, up from around $72 last week. If more oil fields are forced to halt production in the coming days, the large amount of oil left off the market could lead to another sharp rise in prices, with some analysts expecting Brent to cross the $100 a barrel threshold.
The Gulf states — including Saudi Arabia, the United Arab Emirates, Kuwait and Qatar — rely heavily on large storage complexes at export terminals scattered across the region.
These facilities serve as vital buffers where crude oil and refined products move from production fields to storage tanks. Complex systems of pipelines and pumps blend the oil to contract specifications before it is loaded onto ships for transport to customers around the world.
When export routes like the Strait of Hormuz are restricted, producers can temporarily continue pumping by sending oil to these storage facilities.
Iraq has already been forced to cut oil production by more than half, Iraqi oil officials said earlier this week.
Production at the country's largest oil field, the Rumaila Oil Field, fell by 700,000 barrels per day, while the West Qurna 2 Oil Field saw output fall by about 450,000 barrels per day. The Maysan Oil Field also cut output by about 350,000 barrels per day. In addition, Iraq has suspended oil production in the northern Kirkuk region as a precaution.
Saudi Arabia has much greater storage capacity and can bypass the Strait of Hormuz through pipelines — but only to a point, as its production and exports are much higher, Antoine Halff, co-founder of data company Kayrros, wrote this week.
The Ras Tanura terminal, which houses the world's largest offshore oil loading facility, has been attacked several times by drones as Iran strikes neighboring countries.
As a result, Saudi Arabia has diverted more of its oil exports to the Red Sea port of Yanbu. The Saudi Red Sea system can only partially compensate for the disruption of supply in the Persian Gulf, analysts say.
