Shell has declared force majeure on shipments of crude oil from Forcados, one of Nigeria’s largest export terminals and the disruption is helping oil prices hit a level not seen in weeks.
It is yet another show of how cash-strapped Nigeria is failing to take advantage of rising oil prices to ramp up exports.
Oil settled at the highest level in nearly a month after U.S. crude stockpiles decreased and economic data pushed equities higher. Brent for February settlement rose $1.31 to settle at $75.29, the highest in two weeks
West Texas Intermediate futures rose 2.3%, closing above $72 for the first time in two weeks. Prices got a boost after the Energy Information Administration reported crude inventories declined 4.72 million barrels last week.
On the consumption side, the outlook is mixed. Gasoline stockpiles in the U.S. climbed as implied demand plunged nearly half a million barrels a day last week.
The Chinese city of Xi’an is tightening its virus rules in a bid to curb an outbreak, local media reported, but so far the impact of omicron on global demand has been fairly limited.
However, an energy crunch in Europe and disruptions to supply from Libya and Nigeria added to bullish sentiment. Weakness in the dollar also lent support to oil. A weaker greenback makes oil less expensive for holders of other currencies.
Trading is starting to wane into the Christmas period. Average Brent crude futures volumes over the last 15 days are the least in two months, while WTI open interest has plunged to its lowest since 2016.
“Holidays can be treacherous in the market,” said Phil Flynn, senior market analyst for Price Futures Group. “We have seen crazy moves on light volume.”
Oil is poised to cap a yearly gain following a rebound from the pandemic, but the rally has faltered over the past couple of months in part due to demand concerns after the emergence of omicron.
There are some signs of softening consumption in Asia and the crude market’s structure has weakened significantly, indicating over-supply in the near term.
Europe’s energy crunch, meanwhile, has raised the prospect of greater demand for oil products in power generation.
Natural gas prices surged after Russia curbed flows, forcing France to boost electricity imports and burn oil to keep the lights on. U.S. Gulf Coast refiners have also trimmed diesel shipments to Europe to prioritize domestic demand and buyers in Latin America.
In the short-term, geopolitical issues could provide some support to a rally in oil, most notably from tensions in Europe in response to Russia’s natural gas deliveries, said Flynn.