The oil price moved closer to the $50 a barrel mark for the first time since November, as disruption in Nigeria and another potential threat to supply in Venezuela helped extend crude’s rally.
Militant threats to pipelines in Nigeria, a key Organisation of Petroleum Exporting Countries (OPEC) producer, is the latest fillip for an oil price that has also benefited from hopes that second-quarter demand in China is proving more resilient.
Militant attacks has seen over 400,000 bpd barrels knocked out of Nigeria’s output and a recent wildfire in the Canadian province of Alberta has taken more than 1 million bpd of capacity offline over the start of May.
“President Buhari has taken steps that connote intolerance for insecurity, given some progress with Boko Haram. But it will amount to a zero-sum game, if Boko Haram abates only for Niger Delta militancy to escalate. So all options, channels and considerations should be made to stop the spreading ripple,” Chijioke Mama, an energy analyst, told BusinessDay.
The Organization of Petroleum Exporting Countries (OPEC) increased production by 484,000 barrels to 33.217 million a day in April, the most in monthly data compiled by Bloomberg going back to 1989, according to a survey of oil companies, producers and analysts.
Iranian output rose by 300,000 barrels a day to 3.5 million, the most since December 2011.
Iraqi production rose by 160,000 barrels a day to 4.31 million in April, according to the survey. OPEC’s second-biggest producer pumped a record 4.51 million barrels a day in January.
Saudi Arabia, OPEC’s top producer, increased output by 80,000 barrels a day to 10.27 million, the highest level since November.
Brent, the global benchmark for oil, jumped as much as 2.2 per cent to $48.90. It last traded at $50 in late November. Meanwhile, West Texas Intermediate, the US benchmark, rose 2 per cent to $47.14.
The spectre of diminished supply was enough to prompt analysts at Goldman Sachs to lift their forecast for WTI, predicting the US benchmark will average $45 per barrel during the second quarter. That is up from its estimate of $35 in March.
“While supply and demand surprised to the upside commensurately in 1Q16, leaving the market oversupplied by 1.4m b/d, we believe the market has likely shifted into deficit in May,” Damien Courvalin, a commodities analyst at the bank, wrote in a report on Monday.
Brent is now up 75 per cent since hitting a low for the year in late January, handing some vindication to the more bullish who had expected the balance between supply and demand to help push prices higher in the second half of the year.
US oil production has declined for the past 15 weeks, contributing to the general sense that the market is beginning to rebalance.
Political instability in Venezuela has also caused anxiety over supply as President Nicolás Maduro on Friday announced plans to extend his government’s emergency powers.
Last week, the International Energy Agency, an influential energy body, said it was more likely to increase, rather than cut, its demand growth forecast because of the booming global gasoline market and India’s increasing thirst for crude.
It said that global oil markets is rebalancing, helped by supply from Iran, Iraq and United Arab Emirates, which is helping to offset output declines from Nigeria, Canada, Libya and Venezuela
In its oil market report for May, it revised global oil demand growth for the first quarter of 2016 upwards to 1.4 mb/d, led by strong gains in India, China and Russia. For the year as a whole, it predicted that growth would be around 1.2 m barrels per day with demand reaching 95.9 mb/d.
However, Goldman remained cautious in the medium term, predicting only a gradual recovery. By contrast, analysts at Bank of America Merrill Lynch argued there are reasons for optimism in the medium-term.
The bank pointed to “a dovish Fed, a weaker USD, and improving economic activity in emerging markets” as a reason for optimism, and said it retains its view that WTI will hit $54 a barrel by December and will average $59 through 2017.
ISAAC ANYAOGU with agency reports
