- Production and prices
Since the middle of July oil fell steadily for 11 trading days bringing prices down from $147 to as low as $121 earlier this week. There was little apparent cause for the drop other than a general correction from the $35 per barrel run-up in the previous two and half months, worry about the US economy, and reports that demand for gasoline in the US was dropping sharply. Chinese efforts to clean up their air prior to and during the Olympics by closing factories and job sites, forcing nearly 2 million vehicles off the roads, and banning the unloading of volatile cargoes at some ports may have contributed to lower demand. Even renewed Iranian defiance of Western efforts to shut down their enrichment program and new pipeline bombings by Nigerian militants were not enough to reverse the decline.
On Wednesday, however, prices rebounded by $5 a barrel to close at $127 after the EIA reported a drop of 3.5 million barrels in US gasoline inventories rather than the expected 400,000 barrel increase. This decline in the face of fairly large imports apparently was taken by the markets that the drop in demand for gasoline may be slowing or was not as great as was widely perceived. The EIA continues to report that demand for all petroleum products in the US as well as gasoline is now running about 2.4 percent lower than last year.
Opinions as to what happens now are all over the map with some observers convinced that oil will surge to new highs due to tight markets and others saying the bubble is broken and that oil will soon be below $100 a barrel. In any event US gasoline prices have slipped by 18 cents in the last two weeks to a nationwide average of $3.92, which in turn may stimulate demand.
On Monday the Movement for the Emancipation of the Niger Delta announced they had blown up two pipelines bringing oil to Shell’s Bonny export terminal. In keeping with what the militants say is a government ban on the oil companies’ confirming just how much damage their attacks do, Shell responded to queries by saying they were investigating the incident. The next day Shell announced they were working hard to restore production, but also invoked Force Majeure on exports from the Bonny terminal for July, August, and September. Loading schedules for the terminal indicate that Shell planned to load about 230,000 b/d during the next two months. Other sources say only about 130,000 b/d has been shut-in by the bombing.
The same pipeline was bombed on May 26th and Shell did not lift Force Majeure until July 15th, suggesting that these deep-in-the-swamps bombings take nearly two months to repair.
In 2005 Nigerian oil production hit nearly 2.6 million barrels per day. Since then militant attacks have reduced production to 1.8 – 2 million b/d despite increases in off-shore production which is safer as the oil is not transported through highly vulnerable isolated pipelines. Earlier this week a leading Nigerian newspaper, citing a government official, claimed that the country’s production was now below 1 million b/d due to an accumulation of problems from the numerous recent attacks.