Global Crude Oil Supply Outage Impacts Crude Oil Prices
Global crude oil supply outages
Citigroup estimates that current global supply outages could be around 3.5 MMbpd (million barrels per day). Market surveys project that this could be as high as 4 MMbpd. Global crude oil supply outages supported crude oil in prices in 2016 along with slowing US crude oil production and rising crude oil demand from Asia. As a result, oil prices are trading close to 2016 highs. For more on crude oil prices, read Part 1 of the series.
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Major supply outages in 2016
- Barclays reported that Nigeria’s crude oil production is down by 300,000 bpd (barrels per day) in 2016 at 1.6 MMbpd. It’s the lowest level in 22 years. On June 6, 2016, terrorist attacks impacted Nigeria’s pipeline infrastructure. Nigeria’s Bonny Light crude output fell by an estimated 170,000 bpd. Some sources state that Nigerian crude oil production might be as low as 1 MMbpd in the past few months. Approximately 70% of Nigeria’s income depends on crude oil revenues. The terrorists think that oil production polluted Niger Delta’s southern region. In the last four months, terrorists have attacked Shell (RDS.A), Chevron (CVX), and Eni (E) facilities in Nigeria. Companies like ConocoPhillips (COP) and Royal Dutch Shell (RDS.A) plan to sell their oil fields in this region. So, crude oil production is expected to decline more.
- The supply outage in Canada due to wildfires in May supported crude oil prices. Production fell by up to 1.2 MMbpd. However, crude oil production has restarted slowly.
- Political unrest in Libya led to a decline in the country’s crude oil production. Libya’s crude oil production fell to 400,000 bpd, according to data from Bloomberg due to attacks at loading terminals since 2014. This led to a decline in exports. Libya produced 1.6 MMbpd before the rebel attacks in 2011. Reuters’ surveys project that Libyan crude oil production fell to 0.26 MMbpd in May 2016.
- The supply outage in Venezuela also supported crude oil prices. Venezuela’s crude oil production averaged 2.6 MMbpd in 1Q16—compared to 2.8 MMbpd in 2015.
Impact on energy companies and ETFs
WTI and Brent crude oil prices are up more than 90% from the lows in February 2016. High crude oil prices benefit oil and gas producers like Halcon Resources (HK) and PDC Energy (PDCE). The volatility crude oil prices also impacts ETFs and ETNs like the United States Brent Oil ETF (BNO), the ProShares Ultra Oil & Gas (DIG), and the ProShares UltraShort Bloomberg Crude Oil ETF (SCO).
Read the next part of this series to learn more about the Organization of Petroleum Exporting Countries’ crude oil production in May 2016. We’ll also discuss the long-term production projection.