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Bullish week ends on a negative note

Published Monday, June 13th, 2016

Last week’s positive performance in the oil market was partly due to the aftershock of unexpected supply outages from May. The EIA saw the extent of these disruptions in the region of 3.6 mbpd, the highest ever. Not surprisingly, the leader of the pack is Canada where oil production fell by an average of 800,000 bpd due to the wildfires in Fort McMurray, Alberta. Militant attacks on Nigerian oil installations cut the output of the West African OPEC member by more than 250,000 bpd from April and the country reportedly produced 1.4 mbpd in May. As a comparison this is 450,000 bpd less than the January output. Iraq and Libya contributed 50,000 bpd each to the month-to-month fall due to power outages and bad weather in the former and the tug-of war between rival state oil companies at the Marsa al-Hariga terminal in the latter.

Apart from Nigeria the situation has so far improved this month. In Canada, oil workers have started to return to work with production gradually restarting. In Iraq technical and weather-related issues do not seem to hinder production whilst Libyan oil exports from the aforementioned terminal have resumed after rival companies resolved their dispute.

These supply disruptions are expected to reduce both OPEC and non-OPEC supply for May and 2Q when OPEC and the IEA publish their monthly supply/demand forecasts today and tomorrow respectively. The latest leg up that started at the beginning of May was triggered by the Canadian wildfires. The almost $10/bbl rally was further supported by other outages so it is only logical to see softer prices as these disruptions subside. This is probably the most important reason why we saw lower prices in the second half of last week which is continuing this morning as Brent is down 40 cents/bbl at the time of writing. The early morning sell-off is partly caused by last Friday’s rig count report from Baker Hughes which saw the number of rigs increasing for the second consecutive week, this time by three.

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Posted by Tamas Varga

Tamas Varga has been in the oil industry since 1992 and with PVM for 18 years. During his time in the industry he has gathered a range of experience in the oil markets. At PVM Tamas is in charge of data collection and analysis.