Oil prices up on Nigerian strike threat, short covering

Oil prices rebound after sharp losses on Wednesday

Oil prices rose over one per cent on Thursday after Nigerian oil workers threatened to strike and as traders cover shorts after tough losses on Wednesday caused by larger-than-expected rises in US refined fuels stocks.

By 1:37 a.m., EST, benchmark Brent had risen 94 cents to $63.16/barrel and US WTI was up 72 cents to $56.68/barrel.  The Canadian Crude Index was at $37.95.

“Short covering in the market, together with the threat of a strike by Nigeria’s key oil union, has provided some support to oil prices in today’s session,” Abhishek Kumar, senior energy analyst at Interfax Energy’s Global Gas Analytics told Reuters.

A “mass sacking of workers” is the reason one of Nigeria’s large oil unions is threatening to strike beginning on Dec. 18.

On Wednesday, Brent dropped 2.6 per cent and US WTI fell 2.9 per cent after the US Energy Information Administration reported a significant increase in US fuel stocks.

According to the EIA, US crude stocks fell by 5.6 million barrels last week to 448.1 million barrels.  US crude inventories now sit below 2015 and 2016 seasonal averages.

However, gasoline stocks jumped by 6.8 million barrels, much higher than analysts’ expectations of a rise of 1.7 million barrels.  Distillate stocks, including diesel and heating oil rose by 1.7 million barrels.

“It was a sharp correction yesterday, so it’s a bit of a pause today,” Olivier Jakob, managing director of PetroMatrix, told Reuters.  He added “technically, it’s still very weak.”

JPMorgan says American shale producers will only re-think their drilling plans for 2018 if WTI rises and stays in the $60/barrel range.  Until then, activity appears to be “range-bound”, according to Arun Jayaram, an oil industry analyst.

“None expected to materially alter course as long as WTI stays in the $45-55 range,” wrote Jayarum of Permian drillers.  Even with the extension of the OPEC supply cut agreement, unless WTI runs above $60/barrel for one- to two-quarters, drilling will mostly remain constant.

JPMorgan says with the industry struggling with labour and equipment shortages, it expects 2018 spending by independent oil producers to be “mostly flattish”, compared to current levels.

In the week ending Dec. 1, US production rose by 25,000 barrels per day (b/d) to 9.71 million b/d.  Increasing US production threatens to undermine OPEC’s efforts to cut the global glut of crude which tanked prices beginning in 2014.

There are “darker shadows over the pace of rebalancing, if…any is taking place”, Sukrit Vijayaker, managing director of energy consultancy Trifecta, told Reuters.