Oil prices jumped by the most in six months yesterday, rebounding from six and a half year lows, as a surge in global stock markets and outages in two major Nigerian pipeline sparked a rally.
Royal Dutch Shell declared force majeure on shipments of Nigeria’s Bonny Light crude oil after shutting two pipelines, cutting supplies from Africa’s biggest oil producer.
Brent crude, the international benchmark, was up more than 7 per cent, or $3 a barrel, in afternoon trading to $46.32, the biggest one day increase since February. West Texas Intermediate, the US marker, increased by $2.93 a barrel to $41.55.
Meanwhile, the Nigerian National Petroleum Corporation (NNPC) has stated in a release that as part of measures to optimise the marketing of the country’s crude oil and secure new market potentials, the number of off-takers for the proposed 2015/2016 term contract, which would emerge after a planned rigorous competitive bid exercise has been pruned from 43 to 16.
“In the days ahead we shall place advertisement for the 2015/2016 Term Contracts and the publication will run for one month in major National and International print media to ensure effective message penetration. Later the guidelines for the selection of new off-takers would be published and subsequently, a special bid evaluation committee would be constituted to conduct due diligence on successful applicants”, the Corporation explained.
The NNPC also clarified that apart from the earlier listed industry operators whose performance trajectory impressed management to invite them to bid for the proposed Offshore Processing Agreements (OPA) the Corporation is extending the invitation for competitive bidding to Forte Oil and Mobil, among others.
Nigeria, an Opec member which produces more than 2 per cent of global supplies, has been plagued by pipeline leaks, sabotage and theft in recent years.
Shell Petroleum Development Company of Nigeria, a Shell subsidiary, said the company was fixing a reported leak on the Trans Niger Pipeline and removing “theft points” on the Nembe Creek Trunkline.
Oil was already rallying, however, before the news from Nigeria supported by a move higher in global stock markets after a volatile few trading sessions, with traders seeing a lower chance of a US interest rate rise next month.
“The flat price of crude oil will continue to be influenced by the volatility in the equity markets,” said Olivier Jakob at consultancy, Petromatrix.
Growing concerns about an economic slowdown in China — the world’s largest oil importer — and renewed signs of a persistent crude overhang, took prices to the lowest levels this week since spring of 2009.
The jump in prices on Thursday bore the hallmarks of a short-covering rally, traders said. Hedge funds and other large speculators had amassed a large short position in both major oil benchmarks in expectation prices would continue to fall.
With prices recovering, funds scrambled to buy back positions, traders said, squeezing prices higher.
On Wednesday, the statistics arm of the US energy department said weekly commercial crude oil stocks had fallen by 5.45m barrels, the largest drop since early June.
Analysts remain cautious about whether Thursday’s rally signals the oil price decline is over.
As the US summer driving season draws to a close and refinery maintenance season gets under way, plants were “likely to process less crude oil, which in turn will drive up crude oil stocks”, said Carsten Fritsch, analyst at Commerzbank.
Despite robust global demand, oil analysts have said meaningful supply reductions will have to occur before prices post a sustainable rebound.
US shale production has surpassed expectations while Opec producers such as Iraq and Saudi Arabia have ramped up output even with prices down more than half since June last year.
“We do not expect prices to rally strongly until supply-side dislocations become much more visible,” said Paul Horsnell, head of commodities research at Standard Chartered.
Horsnell, who has been bullish on the oil price, reduced his 2016 forecast for Brent by $20 a barrel to $63.
“The main supply-side tightening will likely come later, in mid-2016 and beyond, due to the lagged effect of capex costs on non-Opec supply,” he said.
Anjli Raval & David Sheppard, FT
