Nigeria Oil Supply Picture Worsens as Militants Shut Down Chevron Plant

by Ship & Bunker News Team
Friday May 27, 2016

A new militant attack on a Chevron oil facility in Nigeria's Delta region helped stoke a buying frenzy that led to oil prices breaking $50 a barrel on Thursday for the first time in seven months before sinking below that level later in the day.

Brent climbed to $50.51 then retreated 15 cents at $49.74 per barrel; WTI reached $50.21 then fell eight cents to $49.48.

The late-day declines are said to be due to investors worrying about the prospect of high prices encouraging more output and adding to a global glut that is just now showing signs of abating.

The Nigerian attacks, combined with Canada's wildfires, unrest in Libya, and economic chaos in Venezuela, have effectively removed nearly four million barrels per day from total production output.

Still, investors are reportedly nervous about the outcome of the Organization of the Petroleum Exporting Countries' (OPEC) meeting in Vienna on June 2: "The .. risk is that following the meeting, (the) Saudis will increase production to meet rising summer domestic demand, to preserve market share in its oil wars with Iran and Iraq," explains David Hufton, head of PVM Oil.

Meanwhile, Chevron spokespeople did not issue any comment about the attack, but a message tweeted to Reuters from an account used by the Niger Delta Avengers read, "We Warned #Chevron but they didn't Listen. @NDAvengers just blow up the Escravos tank farm Main Electricity Feed PipeLine."

Nigeria has mobilized army reinforcements to hunt the militants.

Bill O'Grady, chief market strategist at Confluence Investment Management, warns that global output declines are going to continue, but this doesn't mean oil prices will necessarily go higher: "a lot may be priced in; it was a lot easier being bullish oil with sub-$40 prices than it is near $50."

The confluence of factors that have caused the global output declines have surprised some critics, at least for their rapidity: John Kilduff, partner at Again Capital, last month remarked that "It was a bolt out of the blue in terms of how much oil came off the market so quickly."