Oil Markets Open Up as Global Outages Curb Supply
06 Juin 2016 - 12:30PM
Dow Jones News
LONDON—Oil markets opened the week trading up on Monday,
supported by global supply outages which were helping to curb
physical supply.
The global benchmark, Brent, gained 1.15% to reach $50.21 a
barrel. Its U.S. counterpart, West Texas Intermediate, was trading
up 1.13% at $49.17 a barrel.
Oil supply in Nigeria continued to be affected by attacks from
Nigerian militants, despite Exxon Mobil Corp. lifting a force
majeure—a suspension of service due to events that it couldn't
control—at Que Iboe last Friday.
Last week, during a media scrum at a meeting between members of
the Organization of the Petroleum Exporting Countries, Nigerian oil
minister Emmanuel Ibe Kachikwu said that he had met with militants
to try to prevent future attacks and thereby reduce production
outages.
Full production at the Forcados export terminal will be restored
by the end of August, Mr. Kachikwu said. Supply across the country
has been cut to multiyear lows because of the continuing
instability.
In recent weeks, outages in Nigeria and Canada have removed more
than three million barrels of crude from the market a day.
But 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.
Morgan Stanley said that, while the rig count increase was "not
enough to materially change the outlook for U.S. production," the
figures suggest "rigs may be returning in the best acreage, namely
the Permian Basin."
If the trend continues, it could cause prices to tumble again as
supply outstrips demand, analysts said.
"50 is the new norm," said OCBC economist Barnabas Gan, saying
many shale producers whose production costs on average vary from
$30 to $50 a barrel are likely to be lured back to the oil fields,
further drenching the still-oversupplied market.
Last week, a meeting between members of the Organization of the
Petroleum Exporting Countries finished without any agreement on
curbing or halting supply. The current strategy—a hands-off
approach which lets the market decide the price—is working, several
OPEC ministers said.
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 06:15 ET (10:15 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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