Oil prices rise with Brent at $50 on Nigeria, Canada outages
London (Jun 6) Oil markets opened the week trading up on Monday, supported by global supply outages which were helping to curb physical supply.Brent crude prices rose above $50 a barrel on Monday on renewed hope for more cohesion within the Organization of the Petroleum Exporting Countries, but signs of higher crude production in the U.S. brought prices down.
The global benchmark, Brent LCOQ6, +1.19% , gained 1.15% to reach $50.21 a barrel. Its U.S. counterpart, West Texas Intermediate CLN6, +1.17% , was trading up 1.13% at $49.17 a barrel.
Oil supply in Nigeria continued to be affected by attacks from Nigerian militants, despite Exxon Mobil Corp. XOM, -0.18% lifting a force majeure—a suspension of service due to events that it couldn’t control—at Que Iboe last Friday.
Last week, during a media scrum at a meeting between members of the Organization of the Petroleum Exporting Countries, Nigerian oil minister Emmanuel Ibe Kachikwu said that he had met with militants to try to prevent future attacks and thereby reduce production outages.
In recent weeks, outages in Nigeria and Canada have removed more than three million barrels of crude from the market a day.
But price gains are limited by U.S. production figures, which show that output is recovering. Higher oil prices are likely enticing U.S. producers back to the market, as oil becomes more cost-effective to produce, analysts said.
A survey from Baker Hughes Inc. on Friday showed that active rig counts in the U.S. rose by nine last week, the first increase in 11 weeks.
Morgan Stanley said that, while the rig count increase was “not enough to materially change the outlook for U.S. production,” the figures suggest “rigs may be returning in the best acreage, namely the Permian Basin.”
If the trend continues, it could cause prices to tumble again as supply outstrips demand, analysts said.
“50 is the new norm,” said OCBC economist Barnabas Gan, saying many shale producers whose production costs on average vary from $30 to $50 a barrel are likely to be lured back to the oil fields, further drenching the still-oversupplied market.
Last week, a meeting between members of the Organization of the Petroleum Exporting Countries finished without any agreement on curbing or halting supply. The current strategy—a hands-off approach which lets the market decide the price—is working, several OPEC ministers said.