Oil rises to 2016 high on supply disruptions, US gasoline demand

Brent oil price shot to a 2016 high of $45.45 a barrel in late trading yesterday in a week that has seen disruptions in Nigeria and Kuwait, according to wire services monitored by BusinessDay.

A note by Goldman Sachs late yesterday  said the market appeared to have shrugged off negative sentiments following the failed Doha meeting where Saudi-Iranian rivalry erased any hope of a production freeze deal.

Traders said also that oil turned positive after the latest report from the US Energy Information Administration showed that crude stockpiles climbed less than expected and output slipped in the latest week.

The report showed that inventories of US crude rose by a less than expected 2.08m barrels to 538.6m in the week to April 15, meanwhile, stockpiles at Cushing, Oklahoma, a key US delivery hub, unexpectedly dropped. The report also showed that production in oil fields slid by 24,000 barrels to 8.95m barrels a day.

Analysts said US oil output fell for the sixth straight week as shale producers continue to reel from the collapse in global oil price with more rigs being decommissioned.

Michael Hsueh, commodity analyst at Deutsche Bank said there was a rebalancing happening in the global market which is being helped by better than expected growth in gasoline demand in the US.

He said the understanding in the market that the third and fourth quarters of the year were typically low production quarters has helped the current rally in oil price.

OPEC ministers will meet again in June and it is unclear if the fierce rivalry between Saudi Arabia and Iran will flare up again before the meeting.

Crude prices were lower earlier in the day after Kuwaiti oil workers ended their strike, which had seen the nation’s output slip to 1.5m barrels a day from an average of 2.8m last month.

A glut of supply continues to see oil languish more than 60 per cent below levels seen in mid-2014, when oil began its protracted decline.

Yesterday’s rally in oil price will give cheer to Nigerian revenue managers who had pegged the budget benchmark at $38 a barrel and if the price is sustained at this level, it could mean some respite for the beleaguered currency, the naira and most importantly for Nigerian businesses battling an unprecedented shortage of foreign exchange.

However, the ability of Nigeria to pull in significant extra earnings when prices rebound is being hampered by production disruptions in the Niger Delta.

According to figures seen by BusinessDay, Saudi Arabia, UAE, Qatar and other Gulf countries are putting more oil rigs to work in time of depressed oil market while rigs are being decommissioned in Nigeria as a result of government policy paralysis.