Kuwait’s oil boom resumes as closed Strait of Hormuz fills storage tanks to capacity – BitRss

TLDR:

• Kuwait has declared Force Majeure on the 18th because the coastal tanks have reached their full capacity and there is no way to export.
  
• London’s seven letters of assurance closed the strait, not the Iranian strike on Kuwait’s oil production facilities.
  
• JPMorgan warns that if Hormuz remains closed, the total shutdown in the Persian Gulf could reach 5 million barrels per day.
  
• Forced well closures risk 10 to 30 percent of permanent recovery, turning the disruption into a long-term loss of supply.

Kuwait’s oil production has fallen after onshore storage tanks reached full capacity. This happened on the 18th day of the closure of the Strait of Hormuz for commercial ships.

The Gulf country was producing 2.8 million barrels per day until February 28. Since then, no tankers have been loaded at Kuwait’s export terminals.

Oil continued to flow from wells to storage without a route to market. Kuwait declared a state of force majeure and began cutting production in response.

Withdrawal of insurance, not missiles, closed the strait

In a post on X, analyst Shanaka Anslem Perera revealed the root cause of the shutdown. He noted that seven letters from London insurance companies effectively closed the Strait of Hormuz.

Without shipping insurance, commercial vessels cannot legally transit the waterway. It was the letters, not the missiles, that caused the decline in Kuwait’s oil production.

Iran fired missiles at military bases and the American embassy in Kuwait. However, zero confirmed strikes have hit any oil production or export facilities.

Kuwait’s oil refineries and export terminals have remained physically intact throughout the conflict. The shutdown was entirely due to logistical disruptions downstream of the wells.

JPMorgan estimated that Kuwait would hold 18 days of storage after the shutdown. This estimate was correct as the tanks reached capacity on schedule.

Iraq already cut 1.5 million barrels per day last week for similar reasons. The same maintenance arithmetic is now calculated in Saudi Arabia, UAE and Qatar.

JPMorgan warned that continued shutdowns could bring the total Gulf shutdown to about 5 million barrels per day. This figure is about 5 percent of the world’s oil supply.

The cuts stem from storage constraints rather than any attack on production infrastructure.

Reservoir damage could partially make Kuwait’s oil output decline permanent

The shutdown of Kuwait’s oil production raises a second concern, along with the immediate loss of volume. Forcibly closing a well under reservoir pressure can cause permanent damage to the formation.

Asphalt precipitation, fine migration, clay swelling and pressure drop are the main hazards. These factors can reduce long-term recovery rates by 10 to 30 percent, even after wells are restarted.

The Society of Petroleum Engineers has documented this pattern over decades of forced shutdowns. During the 1991 Gulf War, some Kuwaiti mines lost 15 to 25 percent of their long-term recovery capacity.

Mitigation options exist, including chemical inhibitors and controlled closure procedures. However, these measures require planning time, which insurance coverage does not provide.

Kuwait had about 18 days’ notice of the storage crisis’ peak. Whether this window was enough to protect thousands of production wells remains an open question.

Post-recovery treatments can limit damage if applied promptly. The result determines whether the reduction in production is temporary or partially permanent.

Markets are currently pricing in a supply disruption. However, reservoir physics may indicate a supply disruption.

The difference between the two results could be as much as 10 to 30 percent of Kuwait’s long-term product. This difference is a central question that the energy market has not yet fully priced.

appeared first on Blockonomi after Kuwait’s oil production cuts began as the shuttered Strait of Hormuz fills storage tanks to capacity.