Oil Rises as Exxon Declares Force Majeure on Nigerian Exports

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  • orce majeure declared after ‘system anomaly,’ Exxon says
  • BNP Paribas and JBC see risk of renewed crude-price declines

Oil rose in New York after Exxon Mobil Corp. declared force majeure on shipments of Nigeria’s biggest crude export grade, erasing an earlier drop of 1.4 percent.

Force majeure — a legal clause that allows Exxon to stop shipments without breaching contracts — was declared on Qua Iboe crude after “a system anomaly observed during a routine check of its loading facility,” the company said in an e-mailed statement Friday. China processed a record amount of crude in the first half of 2016 as its gross domestic product in the second quarter exceeded estimates. U.S. gasoline stockpiles unexpectedly rose last week.

“The situation in Nigeria and the vulnerability of supply there is well known to the market,” Harry Tchilinguirian, head of commodities research at BNP Paribas SA in London, said by e-mail. “Indeed, there are many factors playing against each other in the market.”

The Niger Delta Avengers, a militant group that has targeted oil installations in Nigeria this year, claimed earlier this week that it attacked the Qua Iboe crude pipeline. Qua Iboe is the third Nigerian crude grade to be declared under force majeure currently, leading to a total of about 672,000 barrels a day to be under some form of a restriction, according to information from companies compiled by Bloomberg.

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West Texas Intermediate crude for August delivery rose 45 cents to $46.13 a barrel at 9:56 a.m. on the New York Mercantile Exchange after earlier touching an intraday low of $45.05. The grade rose 93 cents to settle at $45.68 on Thursday. Total volume traded was about 10 percent above the 100-day average.

China Refining

Brent for September settlement climbed 44 cents, or 0.9 percent, to $47.81 a barrel on the London-based ICE Futures Europe exchange. The contract increased $1.11 to end the session at $47.37 on Thursday. The global benchmark crude traded at a $1.01 premium to WTI for September delivery.

Also lifting oil higher is data showing China processed a record amount of crude on a daily basis in the first half of 2016 as plants boosted operations after getting import licenses. The country’s domestic oil production dropped 4.6 percent to 101.59 million metric tons in the period, the lowest for that period since 2012, according to data from the National Bureau of Statistics on Friday.

The world’s second-biggest economy’s gross domestic product rose 6.7 percent in the second quarter from a year earlier, compared with 6.6 percent seen by economists Bloomberg surveyed.

$40 Oil

Oil has traded between about $44 and $51 a barrel since early May and has climbed from a 12-year low in February amid a string of supply disruptions including attacks in Nigeria. While there’s still a consensus that the worst of the oil glut is over, the International Energy Agency cautioned this week that “the road ahead is far from smooth” amid seasonal weakness in demand and the return of some halted supply.

Analysts including BNP Paribas SA and JBC Energy GmbH warned prices may sink toward $40, due in part to seasonal demand weakness. Crude fundamentals are weaker than many realize, according to Julius Walker, senior consultant at JBC Energy in Vienna.

U.S. inventories are brimming after two years of surplus production and demand for gasoline — the key driver of prices in summer — is proving to be disappointing. Stockpiles of the fuel rose 1.21 million barrels last week and refiners reduced operating rates by 0.2 percentage points to 92.3 percent of capacity, according to the Energy Information Administration.

“We haven’t sorted out our excess supply problems,” Tchilinguirian said. “Unless you see visible reductions in inventories and more pronounced declines in U.S. shale production, the market will have to go back to $40.”

Oil-market news:

  • CNOOC Ltd. decided this week to idle part of its Long Lake oil-sands operation in Alberta. The move comes after five years of problems cemented the site’s reputation as one of the most troubled projects in the region.
  • U.S. oil explorers are yet to fully reap all the rewards of horizontal drilling techniques that helped trigger the shale boom, research firm IHS Markit Energy said.
  • A large number of new ships entering the market combined with a deepening contango has made floating storage relatively attractive for some companies, JBC Energy said in research note.

 

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