Oil Leaks and Disruptions Doing the Job That Producers Won't

Oil's Green Shoots Fuel Rebalancing Process: Currie
  • Iraq, Nigeria unrest affects more than 800,000 barrels a day
  • Brent gains about 20% since output cap announced on Feb. 16

Pipeline leaks and shipping disruptions are doing more to reduce the global oil glut than producers who can’t seem to agree on whether to cap output.

Outages from Iraq and Nigeria have disrupted more than 800,000 barrels a day of supply and tightened the Brent market, according to Citigroup Inc. That’s coincided with a 20 percent jump in Brent prices toward $40 a barrel since a proposed production cap from Saudi Arabia and Russia captivated the market and helped turn sentiment bullish. No deal has been struck and Iran has spurned the idea as it seeks to maximize output.

“Actual disruptions and cuts we’re seeing in the background are largely going unnoticed,” Daniel Hynes, a senior commodity strategist at Australia & New Zealand Banking Group Ltd. in Sydney, said by phone. “U.S. supply is declining and we’re seeing other little disruptions occur here and there. Those types of things are slowly chipping away at the surplus.”

Brent oil has gained about 40 percent since slumping to a 12-year low in January. The International Energy Agency predicts prices may have bottomed as shrinking supplies outside the Organization of Petroleum Exporting Countries and disruptions inside the group erode the global glut. JBC Energy Asia estimates the market, facing a surplus of about 2 million barrels a day in the first three months of the year, will start to rebalance during the third quarter.

Shrinking Output

Brent for May settlement added 19 cents to $38.93 a barrel on the London-based ICE Futures Europe exchange at 3:08 p.m. Singapore time on Wednesday.

Saudi Arabia, Russia, Qatar and Venezuela agreed they would freeze output at January levels if other producers followed suit to tackle a global oversupply. While Nigeria hoped producers would meet this month, talks are now most likely to occur in April, said Gulf OPEC delegates, who asked not to be identified because the matter isn’t public.

The pipeline disruptions in Iraq and Nigeria are temporary and production is expected to come back online, returning more supply to the market.

Damage to a pipeline in Iraq affected about 630,000 barrels a day of supply, according to a March 14 note from Citigroup. Disruptions continue, even after its repair. Exports from Kirkuk to the Turkish port of Ceyhan halted on oil ministry orders, hours after pumping resumed following a prolonged shutdown, the Al-Mada newspaper reported, citing an unidentified official at North Oil Co.

‘External Force’

Nigerian daily exports next month are scheduled to be the lowest since Nov. 2013. Loading at the Forcados facility was halted after a leak was discovered Feb. 14, according to the operator Royal Dutch Shell Plc. While the company stopped short of citing sabotage, it said damage was “consistent with the application of external force.” The shutdown cut oil production by 300,000 barrels a day and repairs will take as long as eight weeks, according to Minister of State for Petroleum Emmanuel Ibe Kachikwu.

U.S. crude output has slipped more than 150,000 barrels a day since January as drill rigs targeting oil fell to the lowest since December 2009. Production outside OPEC will drop by 750,000 barrels a day this year, or 150,000 barrels a day more than estimated last month, the IEA said in a March 11 report. Markets are also being supported by losses in Iraq and Nigeria, the IEA said.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE