Oil Prices Rise as Global Outages Curb Supply
June 06 2016 - 10:12AM
Dow Jones News
By Timothy Puko
Oil prices are pushing up, back toward $50 a barrel as outages
keep curbing supplies.
U.S. crude oil for July delivery was recently up 2.4% at $49.80
a barrel, but it had been down as much as 1.8% earlier. Brent, the
global benchmark, gained 2.2% to $50.75 a barrel on ICE Futures
Europe.
Oil supply in Nigeria continues to be affected by attacks from
Nigerian militantsthat have already cut it to multiyear lows.
Friday morning bombings struck two pipelines, with Royal Dutch
Shell PLC confirming signs of a spill from one it owned. The
purported Twitter account of a band of saboteurs that calls itself
the Niger Delta Avengers called one of the attacks part of its
promise "that Nigeria Oil production will be Zero."
So far it is down to about 1 million barrels a day from 1.8
million earlier this year, said Piper Jaffray Cos.' Simmons &
Co. International, citing government officials. The bank's energy
analysts said it appears Nigeria's Forcados export terminal won't
reopen in June and that Nigerian production is more likely to come
in below estimates this year, making it more likely global
stockpiles will start to drain in the second half of the year.
"If the Nigerian output goes to Zero ... (prices) are going
higher," ICAP PLC broker Scott Shelton said in a note. "At this
point, there is no sign that the Nigeria is getting any better, and
it's looking worse."
Last week at a meeting between members of the Organization of
the Petroleum Exporting Countries, Nigerian Oil Minister Emmanuel
Ibe Kachikwu told reporters that he had met with militants to try
to prevent future attacks and thereby reduce production outages.
Full production at Forcados will be restored by the end of August,
Mr. Kachikwu said.
In recent weeks, outages in Nigeria and Canada have removed more
than three million barrels of crude from the market a day.
Citigroup's commodities strategies team said the supply-demand
imbalances are likely to keep Brent oil above $50 a barrel in the
third quarter, and up to around $65 by the end of 2017, the bank's
analysts said in a note Monday.
"Oil is not conducive to a stable price environment and expect a
volatile path for prices," the bank said.
However, investors are more pessimistic, Citigroup reported. It
surveyed investors and found about 60% expecting prices to be
between $35 and $55 a year from now. Only about 35% expect them to
be higher than that, the bank said.
Price gains are limited by U.S. production figures, which show
that output is recovering. Higher oil prices are likely enticing
U.S. producers back to the market, as oil becomes more
cost-effective to produce, analysts said.
A survey from Baker Hughes Inc. on Friday showed that active rig
counts in the U.S. rose by nine last week, the first increase in 11
weeks.
Many shale producers have costs between $30 to $50 a barrel and
are likely lured into drilling more at current prices, further
drenching the still-oversupplied market, said OCBC economist
Barnabas Gan. If the trend continues, it could cause prices to
tumble again as supply outstrips demand, analysts said.
"One week does not make a trend but the increase in rigs is at
least a warning sign ... that the supply balances in the U.S. may
once again be turning toward the bearish side," Dominick
Chirichella, analyst at the Energy Management Institute
Gasoline futures gained 0.1% to $1.6085 a gallon. Diesel futures
gained 1.1% to $1.5043 a gallon.
Miriam Malek and Jenny W. Hsu contributed to this article.
Write to Timothy Puko at tim.puko@wsj.com
Write to Miriam Malek at Miriam.Malek@wsj.com and Jenny W. Hsu
at jenny.hsu@wsj.com
(END) Dow Jones Newswires
June 06, 2016 10:57 ET (14:57 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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