What: Crude continues to be surprisingly resilient on the heels of the collapse of talks among major oil-producing nations over the weekend. In fact, oil was up nearly 3% by 1:30 p.m. ET on Tuesday, which fueled a 14% jump in Seadrill's (NYSE:SDRL) stock today.
So what: After initially slumping 6% on Monday, crude only closed down 1.5% despite no deal at Doha. That's a big surprise because the market had priced in a production freeze agreement between OPEC and Russia, so the deal's failure should have led to a collapse in the price of crude. Instead, the oil market is finding support in the unlikeliest of sources: Union workers in Kuwait. That's after a strike by workers in that country entered its third day and has cut its crude output by as much as 1.5 million barrels per day, which is more than half of its daily production.
In addition, there are reports of power outages in Venezuela that have taken as much as 200,000 barrels per day of its production offline. Meanwhile, a reported pipeline fire in Nigeria is said to have cut its production by 400,000 barrel per day. To put these supply outages in perspective, they represent a combined 2% of global production.
This is all rather bullish news for crude oil because it means that the market will start using some of the glut of oil that's sitting in storage, which has been the main weight pulling down crude during the past few months. Having said all that, these issues appear to be temporary and won't solve the market's oversupply problem, which is what's so critical to Seadrill's business because it needs an oil market that's hungry for more oil so it can sign its rigs up to lucrative contracts. That's not going to happen anytime soon because the price of crude is still much too low to incentivize drillers to boost investments in deepwater wells.
Now what: The oil market is still a mess given that there is still more than enough supply to meet current demand. It's an issue that's not expected to improve until later this year when U.S. oil production declines set in. As such, Seadrill's stock will continue to be tossed to and fro by the waves of the oil market until crude demand is back in the driver's seat.
Matt DiLallo owns shares of Seadrill. The Motley Fool recommends Seadrill. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.