Oil Prices Rise as Global Outages Curb Supply

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 10:55 ET (14:55 GMT)

Piper Jaffray Companies (NYSE:PJC)
Historical Stock Chart
From Mar 2024 to Apr 2024