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Why Is Nigeria Overshadowing the Crude Oil Market?

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Crude oil prices  

July WTI (West Texas Intermediate) crude oil futures contracts trading in NYMEX rose by 1.4% and settled at $50.36 per barrel on Tuesday, June 7, 2016. Brent crude oil futures trading in ICE also rose marginally by 1.8% and closed at $51.44 per barrel. Prices rose for the second day due to the supply outage in Nigeria and estimates of falling US crude oil inventories. ETFs like the United States Oil ETF (USO) and the ProShares Ultra Bloomberg Crude Oil (UCO) rose on the same day. They rose by 1.5% and 3%, respectively, on June 7, 2016.

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Nigeria 

Terrorist attacks in Nigeria’s Niger Delta region impacted crude oil production in Nigeria. Nigeria was the largest African oil producer until 2015. However, terrorist attacks in the oilfields and infrastructure led to the decline in Nigeria’s crude oil production. Its production declined as low as 1.4 MMbpd (million barrels per day) in May 2016—compared to 1.7 MMbpd in April 2016, according to EIA (U.S. Energy Information Administration) sources. It’s the lowest level in 22 years. Some sources state that Nigeria’s crude oil production might be as low as 1 MMbpd in the past few months. For more on global supply outages, read the next part of the series.

Short-Term Energy Outlook report 

The EIA released its Short-Term Energy Outlook report on June 7, 2016. The EIA raised its 2016 US oil demand growth forecast in this edition. The expectation of a rise in demand and supply outages supports crude oil prices. The uptick in oil prices benefits oil producers like Comstock Resources (CRK), Northern Oil & Gas (NOG), and Cobalt International Energy (CIE).

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WTI and Brent crude oil prices hit 2016 highs 

WTI and Brent crude oil had the highest settlement on June 7, 2016. It’s the highest settlement for WTI crude oil since July 2015. Brent crude oil had the highest settlement since October 2015. Oil prices are up more than 90% since the lows in February 2016. Read the next two parts of the series for updates on bullish crude oil drivers.

US crude oil inventories  

The EIA will release the crude oil inventory report on June 8, 2016. Read the next part of the series to learn more. The roller coaster ride in crude oil prices impacts ETFs such as the ProShares UltraShort Bloomberg Crude Oil ETF (SCO) and the iShares U.S. Oil Equipment & Services ETF (IEZ). 

What’s in this series? 

We’ll also look at the American Petroleum Institute’s US crude oil, gasoline, and distillate inventories in the last two parts of this series. We’ll discuss bullish and bearish catalysts in the next three parts of this series.

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