Oil rises as Kuwaiti strike cuts output for third day

By Devika Krishna Kumar

NEW YORK (Reuters) - Oil prices jumped 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.

Thousands of Kuwaiti oil workers remained on strike for a third day on Tuesday to protest against planned public sector pay reform. The action cut 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.

Traders said other factors that supported prices included 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.

"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."

A spokesman for the Kuwaiti oil and gas workers said on Tuesday their strike would continue until planned public sector pay reforms are cancelled.

Brent crude futures settled up $1.12 at $44.03 a barrel while U.S. crude settled $1.30 higher at $41.08.

Oil pared some gains in post settlement trading after data from industry group American Petroleum Institute (API) showed U.S. crude stocks rose more than was anticipated, last week.

Short covering added to a rally catalyzed by the S&P 500 index crossing a key level that triggered buying in oil.

Analysts said Kuwait's disruption would likely be brief and expect prices to be pressured again as the market is likely to refocus on the oversupply given the failure of major exporters on Sunday to agree to freeze output to avoid worsening the glut.

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 prioritise 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 has indicated it hopes to increase output this year.

(Additional reporting by Karolin Schaps in London and Henning Gloystein in Singapore; Editing by Andrew Hay, Chris Reese and David Gregorio)