Oil rallies to $50 but militants rain on Nigeria’s parade

Oil prices scrambled to $50 per barrel yesterday after seven months of fall in prices induced by global supply glut but Nigeria will not be joining the party.

Global supply has eased by 4million barrels on account of outages from Nigeria, Libya, Venuzuela and Canada.

Michael Wittner, analyst at Société Générale, said: “We expect global crude markets to continue to be driven by supply disruptions, especially in Nigeria and Canada.”

Wild fires in Canada’s Alberta province shut-in over a million barrels per day production while renewed hostilities by Niger Delta militants have knocked out over 800,000 barrels per day in the world’s two major sources of supply shortage.

Militants calling themselves the Niger Delta Avengers have cut Nigeria’s oil output by almost 1m b/d since the start of the year. On Thursday they claimed responsibility for an attack on a power line feeding Chevron’s Escravos terminal.

David Hufton of PVM, an oil brokerage, said: “The Nigerian situation is a serious wild card with the two-week ultimatum from the Avengers for oil majors to cease operations ending today.”

Global benchmark Brent crude oil was up 56 cents at $50.30 a barrel yesterday, having reached $50.71 the highest in nearly 7 months, after US government figures show declines in crude stocks last week.

Attacks on oil and gas infrastructures are threatening Nigeria’s government revenues.

Militant attacks this year have seen disruptions on Agip facility at Orukari, Golubokiri and Kpongbokri communities of Brass Local government in Bayelsa with disruptions of 142,000 barrels per day.

In February,  Shell Petroleum Development Company of Nigeria Ltd declared force majeur on lifting’s from the Forcados export terminal following disruption in production caused by the spill on its subsea crude export pipeline and translated to a loss of 300,000 barrels per day.

In May, militants blew up Well D25 in Abiteye, a major gas well belonging to Chevron. Major pipelines around the area were affected including the Abiteye, Alero, Dibi, Otunana and Makaraba flow stations that feed the Chevron tank farm.

The consequences of these attacks are having a telling effect on Nigeria’s revenue. Federal allocation to the three tiers of government fell in April to N281.5 billion, down N18.25 billion from March according to Kemi Adeosun, minister for Finance.

Nigeria’s economy slumped by 0.36 percent during the first quarter of 2016 from a comparative increase of 2.11 percent during the same period last year according to data published by the National Bureau of Statistics.

This situation has been worsened by the country’s foreign exchange policy that attempts to artificially fix the value of the naira regardless of market realities.

“People are finding it difficult to pay their suppliers, financial houses are finding it difficult to remit funds, these are evidences of a foreign exchange market that is not liquid,” laments Muda Yusuff, director general of the Lagos Chamber of Commerce and Industry.

In the wake of these attacks, analysts are calling for engagement with the militant groups.

Nigerian oil minister Emmanuel Ibe Kachikwu said on Thursday that the government needs to improve its amnesty programme for militants in Niger Delta to address “neglect by the government and international oil companies”

“Given the dire consequences of militancy in the region and Nigeria’s huge reliance on oil revenues, it becomes imperative to say that FG must do more. I believe that the growing spate of attacks should be tackled with dialogue where possible and military response where necessary,” stated Chijioke Mama, an energy analyst.

The International Energy Agency (IEA) in its  Oil market report for May stated  that global oil markets is rebalancing helped by supply from Iran, Iraq and United Arab Emirates which is assisting to offset output declines from Nigeria, Canada and Libya.

The global energy think-tank said that global oil markets are heading towards a long-awaited equilibrium, according to updated supply and demand data.

The OMR for May revised global oil demand growth for the first quarter of 2016 upwards to 1.4 mb/d, led by strong gains in India, China and, more surprisingly, Russia. For the year as a whole, growth will be around 1.2 mb/d, with demand reaching 95.9 mb/d.

“Stock builds are beginning to slow in the OECD: in the first quarter they grew at their slowest rate since the last quarter of 2014 and February saw the first draw in a year,” states the report.

ISAAC ANYAOGU