• 2 hours UK Offers North Sea Oil Producers Tax Relief To Boost Investment
  • 4 hours Iraq Wants To Build Gas Pipeline To Kuwait In Blow To Shell
  • 6 hours Trader Trafigura Raises Share Of Oil Purchases From State Firms
  • 8 hours German Energy Group Uniper Rejects $9B Finnish Takeover Bid
  • 9 hours Total Could Lose Big If It Pulls Out Of South Pars Deal
  • 11 hours Dakota Watchdog Warns It Could Revoke Keystone XL Approval
  • 1 day Oil Prices Rise After API Reports Major Crude Draw
  • 1 day Citgo President And 5 VPs Arrested On Embezzlement Charges
  • 1 day Gazprom Speaks Out Against OPEC Production Cut Extension
  • 1 day Statoil Looks To Lighter Oil To Boost Profitability
  • 1 day Oil Billionaire Becomes Wind Energy’s Top Influencer
  • 1 day Transneft Warns Urals Oil Quality Reaching Critical Levels
  • 1 day Whitefish Energy Suspends Work In Puerto Rico
  • 1 day U.S. Authorities Arrest Two On Major Energy Corruption Scheme
  • 2 days Thanksgiving Gas Prices At 3-Year High
  • 2 days Iraq’s Giant Majnoon Oilfield Attracts Attention Of Supermajors
  • 2 days South Iraq Oil Exports Close To Record High To Offset Kirkuk Drop
  • 2 days Iraqi Forces Find Mass Graves In Oil Wells Near Kirkuk
  • 2 days Chevron Joint Venture Signs $1.7B Oil, Gas Deal In Nigeria
  • 2 days Iraq Steps In To Offset Falling Venezuela Oil Production
  • 2 days ConocoPhillips Sets Price Ceiling For New Projects
  • 5 days Shell Oil Trading Head Steps Down After 29 Years
  • 5 days Higher Oil Prices Reduce North American Oil Bankruptcies
  • 5 days Statoil To Boost Exploration Drilling Offshore Norway In 2018
  • 5 days $1.6 Billion Canadian-US Hydropower Project Approved
  • 5 days Venezuela Officially In Default
  • 5 days Iran Prepares To Export LNG To Boost Trade Relations
  • 5 days Keystone Pipeline Leaks 5,000 Barrels Into Farmland
  • 6 days Saudi Oil Minister: Markets Will Not Rebalance By March
  • 6 days Obscure Dutch Firm Wins Venezuelan Oil Block As Debt Tensions Mount
  • 6 days Rosneft Announces Completion Of World’s Longest Well
  • 6 days Ecuador Won’t Ask Exemption From OPEC Oil Production Cuts
  • 6 days Norway’s $1 Trillion Wealth Fund Proposes To Ditch Oil Stocks
  • 6 days Ecuador Seeks To Clear Schlumberger Debt By End-November
  • 6 days Santos Admits It Rejected $7.2B Takeover Bid
  • 7 days U.S. Senate Panel Votes To Open Alaskan Refuge To Drilling
  • 7 days Africa’s Richest Woman Fired From Sonangol
  • 7 days Oil And Gas M&A Deal Appetite Highest Since 2013
  • 7 days Russian Hackers Target British Energy Industry
  • 7 days Venezuela Signs $3.15B Debt Restructuring Deal With Russia
Alt Text

Markets Shrug On Flat Oil Rig Count

The United States oil rig…

Alt Text

Is This The New Sweet Spot For Shale?

Shale drillers and oil majors…

Nick Cunningham

Nick Cunningham

Nick Cunningham is a freelance writer on oil and gas, renewable energy, climate change, energy policy and geopolitics. He is based in Pittsburgh, PA.

More Info

Oil Supply Disruptions Highest In Five Years

Niger Delta Pipeline Bombing

The disruptions in global oil supplies are at their highest level since 2011.

That comes from an updated assessment from the EIA, which shows total disruptions in oil production at more than 3.6 million barrels per day in May (mb/d), the highest monthly total since the EIA began tracking the data in January 2011.

 

The outages hit major oil supplies across the world. At its worst, Canada saw more than 1 million barrels per day knocked offline because of the wildfires near Fort McMurray. That production is starting to come back online, however, and was always thought to be a temporary disruption.

But other supply outages could be more sustained. Although precise data is hard to come by, Nigeria might currently have more than 1 mb/d offline because of attacks from the Niger Delta Avengers on key platforms, pipelines, and oil wells. The Avengers have threatened to take oil production in Nigeria down to “zero” in an effort to have their demands for sovereignty met. Nigeria’s oil production has plunged from 2.2 mb/d in 2015 down to somewhere around 1 mb/d today. The EIA pegged the country’s production at about 1.4 mb/d in May, but that is probably too high for June given that several more attacks have been carried out since then.

The troubling thing for Nigeria is that these outages are likely to persist for some time. The Niger Delta Avengers have rejected talks with the government and continue to carry out attacks. The oil companies operating in the region – Shell, Eni, Chevron – will find it difficult to even conduct repairs on damaged infrastructure. The Avengers have promised to keep up their attacks, so it is entirely possible that the disruptions will continue to climb.

 

A handful of other smaller outages have hit some fellow OPEC producers. Iraq suffered bad weather and power outages in May, which disrupted an additional 50,000 barrels per day of oil exports. Libya also saw 50,000 barrels per day knocked offline in May because of struggle for the control of the al-Hariga oil export terminal. That disruption has eased since then, but Libya is still producing only a fraction of its pre-war 1.6 mb/d capacity. Related: Is Colorado Ground Zero For The Next Shale Gas Boom?

Meanwhile, some more routine market-based supply adjustments are taking place in many parts of the world – declines that have been expected because of low prices and not because of unexpected outages related to weather or violence. The U.S. continues to lose output as depleting shale wells overwhelm the dearth of new supply. At 8.7 mb/d, the U.S. is down about 900,000 barrels per day from the April 2015 peak.

Venezuela has lost roughly 100,000 barrels per day from last year’s levels because of inadequate maintenance. Mexico has lost a similar amount since the first quarter as its aging fields see output slowly erode. Iraq could also see production decline later this year and next because the government does not have enough funds to pay oil companies to drill.

All of these outages essentially have forced the oil market back into balance sooner than many had expected. The IEA projected last month that the supply overhang only stood at 1.3 mb/d and would decline to 0.2 mb/d in the third and fourth quarter. But the unexpected outages have more or less erased that surplus.

On the other hand, oil storage levels are still massively built up and will have to be drawn down before oil prices can rally substantially higher. With the U.S. still holding more than 530 million barrels, still near 80-year highs, any price rally could be capped until those numbers come down. But that is starting to happen – the EIA just reported that the U.S. posted its third consecutive week of withdrawals.

One other issue worth keeping an eye on is the extraordinary low levels of spare capacity today. OPEC, by maintaining high levels of production and even increasing output in order to hold onto market share, has kept prices low for the better part of two years. But in doing so, Saudi Arabia – the only country with any real ability to ramp up and down production at a moment’s notice – has exhausted a sizable chunk of its spare capacity. As the markets tighten because of declines from high-cost producers, prices will rise. But if more unexpected outages hit the market at some point in 2017, for example, when high-cost production has been forced out the market, there will be a much thinner buffer to fall back on to meet global demand. Saudi Arabia has boasted about the several million barrels per day of spare capacity that it has sitting on the sidelines, but the fact is that nobody really knows if that is accurate or exaggerated. In any event, a smaller spare capacity increases the chances of price spikes in the future. Related: Only Five Oil Majors Make The Fortune 500 List

 

By Nick Cunningham of Oilprice.com

More Top Reads From Oilprice.com:




Back to homepage


Leave a comment
  • Ness on June 12 2016 said:
    Up next the US election and then next spring the Iran election. Be interesting to see if sanctions come back. Eliminate 2 mbod In a balanced or deficit market and those storage levels could get exhausted quick
  • Mergeune on June 13 2016 said:
    Prices seem disconnected and refuse to leap to the $100 bbl levels that pundits have been predicting forever. In spite of the "outages!" The problem is not on the supply side, for those sad sacks who weep for $100 bbl prices to come again.

    According to peak oilers, Saudi Arabia was running out of oil in 2005 with a collapse in production "any day now". The problem is not on the supply side.

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News