A Nigerian oil workers union launched a strike on Monday, citing unfair labor practices, threatening to disrupt a significant portion of the country’s oil supply. But the strike was called off on the same day that it started, easing concerns of a major supply disruption.
The discussion between the government and the Petroleum and Natural Gas Senior Staff Association of Nigeria (Pengassan)—which mostly represents managers in the upstream oil and gas industry—fell apart, leading to the strike. The FT reported that the talks were ongoing, and there are now hopes that negotiations could keep workers on the job.
So far, there are no signs that Nigeria’s oil production is going offline, but strikes in the past have led to supply disruptions. A year ago, a strike by employees at an ExxonMobil-led project knocked 550,000 barrels per day offline, according to the FT, citing Energy Aspects.
But that only affected ExxonMobil. Monday’s strike involved workers from many more companies. “This time around, the potential impact is much greater, however, since Pengassan has called all of its members, covering over 100 oil companies operating in Nigeria, to heed the call to strike,” Energy Aspects said, according to the FT.
Long lines at fuel stations began popping up around the country on Monday on fears of shortages. The state-owned Nigerian National Petroleum Corp. (NNPC) tried to tamp down concerns over a major impact to oil supply. “NNPC wishes to state that relevant government agencies are in consultation with industry unions to arrive at an amicable resolution of issues over which there are threats of industrial action,” NNPC wrote in a statement, according to Reuters. Related: Is U.S. Gasoline Consumption Set To Collapse?
But oil prices rose on the news, and the strike could tighten the market for Atlantic crude, already feeling the effects of the outage at the Forties pipeline system in the North Sea. “There is still no reliable information about how long the repair work will last and when the pipeline will go back into operation,” Commerzbank wrote in a research note. “This should preclude any fall in the Brent price for the foreseeable future.”
A supply outage in Nigeria, should it occur, would be significant, not least because Nigeria was one of the few unexpected surprises in 2017 that spoiled OPEC’s effort at balancing the oil market. In 2016, Nigeria suffered from significant outages due to attacks from the Niger Delta Avengers, a militant group that blew up pipelines and oil platforms in response to what they view as decades of looting of the Delta region by oil companies and the Nigerian government.
The attacks pushed Nigerian oil output down to a multiyear low at just over 1.4 million barrels per day (mb/d) by mid-2016. But a ceasefire and the calming of violence in the region allowed for a restoration of lost output. By November 2017, Nigeria’s oil production was back up to nearly 1.8 mb/d. Nigeria agreed to cap its output in 2017 levels, so it’s not expected to surprise the market again with large volumes of new supply.
However, that doesn’t mean that Nigeria won’t surprise in the other direction. Significant outages remain a very real possibility, even if Monday’s strike is successfully resolved without a supply impact.
The oil market context is much different than it was in 2016, when the world was still awash in crude and inventories were rising. The inventory surplus has dramatically declined this year, falling by two-thirds since January. OECD commercial inventories fell to just 130 million barrels above the five-year average in October, down from over 300 million barrels at the start of the year. Eliminating the surplus, and bringing inventories back to the five-year average, is within site.
That makes any supply outage much more important and influential on prices than would have been the case in 2016. A Nigerian outage, at a time when the North Sea is suffering from shutdowns because of the ongoing repairs at the Forties pipeline system, would put significant upward pressure on prices. Brent, in particular, would feel the effects, much more than WTI.
Meanwhile, Baker Hughes reported an unexpected decline in the North American rig count last week, a move that caught the market by surprise. The oil rig count fell by 4 for the week ending on December 15, the first decline in six weeks. As of Monday afternoon, the news from Nigeria, coming on the heels of the surprise decline in the rig count, plus the ongoing outage at the Forties system, helped push up crude prices.
The suspension of the strike allowed oil prices to fall back again.
By Nick Cunningham of Oilprice.com
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