Nigeria’s improvement in supplies, Gulf crisis create uncertainty in oil market

Oil prices got crushed mid-week after the EIA reported a surprising increase in  crude oil and gasoline inventories, a terrible sign that points to ongoing problems with oversupply.

WTI and Brent dropped by 5 percent, with WTI sinking back into the mid-$40s. The sell-off slowed at the end of the week, but oil traders seem to be looking for some direction.

Royal Dutch Shell lifted its force majeure on its Forcados oil stream in Nigeria, a source of exports that have been offline for more than a year. The resumption of Forcados exports could see 200,000 to 250,000 bpd of additional supplies coming from Nigeria, a headache for OPEC as it tries to balance the market. Higher output from Nigeria this year will come on top of expected gains from the U.S., Canada and Brazil, among others.

The severing of ties by several Gulf States with Qatar raised concerns about supply interruptions, but Royal Dutch Shell and ExxonMobil said that exports of LNG from Qatar have not been affected. The row between Qatar and its neighbours over the alleged support of terrorism, at this point, does not appear to be a major risk to the oil and gas market.

The OPEC cuts probably put a floor beneath prices, with few analysts predicting substantial price losses from here, but there is also not a lot of confidence that a rally is imminent. “Unless data are released that make the latest inventory build appear an anomaly, oil prices are hardly likely to make any lasting recovery,” Commerzbank wrote in a note. PVM Oil Associates strategist Tamas Varga also sounded downbeat. “I’ve been quite bullish for the second half of this year, based on supply and demand balances and I would still not give up on that idea, that rebalancing is going to start in the second half,” Varga said this week. “But if Nigerian and Libyan production is picking up as well as they are now, then slowly, I am probably going to have to start changing my mind.”

“If the market’s telling you anything, it’s saying, ‘E&P guys, slow down,’” said David Pursell, an analyst at investment bank Tudor, Pickering, Holt & Co. “Investors are more worried about whether the market can absorb this slug of growth from U.S. shale.” The investment bank says that shale is probably on its way to strong growth this year, but if prices stay between $40 and $45 then it could derail the production growth in 2018. “That $10 makes a big difference,” Pursell said.

The U.S. government is mulling a series of sanctions that would target Venezuela’s oil sector over the government’s crackdown on protestors, a move that could be highly damaging to a country on the brink of collapse. It is not certain that the Trump administration will move forward, knowing that it would exacerbate the humanitarian crisis in the country.

Olusola Bello with agency report