Supply Shortages in Nigeria, Others Lift Oil Prices

By Adedapo Adesanya

Oil prices closed higher on Tuesday, with the Brent crude rising by 20 cents or 0.16 per cent to trade at $79.10 per barrel and the West Texas Intermediate (WTI) crude growing by 5 cents or 0.04 per cent to sell at $76.02 per barrel.

The prices were lifted as a result of high aggregated production disruptions in Nigeria, Ecuador, and Libya amid the rapid spread of the Omicron coronavirus variant.

The three oil producers declared forces majeures this month on part of their oil production because of maintenance issues and oilfield shutdowns, causing supply shortages at the global market.

Nigeria has been experiencing shut-ins due to pipeline vandalism, community interferences, sabotage of oil facilities, among others and this has limited Africa’s largest oil producer’s capabilities to increase its production in recent months.

Ecuador’s government declared force majeure over its oil exports and production contracts on Monday because of the pipeline closures, caused by ongoing erosion in Napo province.

The country’s crude production averaged 485,000 barrels per day before the force majeure and by Tuesday it had fallen to close to 220,000 barrels per day, according to government data.

In Libya, production from El Sharara, Libya’s largest field with a capacity of 300,000 barrels per day, as well as the El Feel, Wafa and Hamada fields, had been shut down by the Petroleum Facilities Guard (PFG), a paramilitary force whose brief is to protect NOC’s assets and facilities due to political dispute.

Support also came as Britain and France made no move to impose more COVID curbs before the year-end.

In addition, the expectation of another large drop in US crude inventories also helped prices as the American Petroleum Institute (API) estimated the inventory draw for crude oil to be 3.09 million barrels.

US crude inventories have shed some 68 million barrels since the beginning of the year.

In the previous week, the API reported a draw in oil inventories of 3.670 million barrels, compared to the 2.633-million-barrel draw that analysts had predicted.

The Energy Information Administration (EIA) will release the official figures on Wednesday.

Meanwhile, Omicron-induced staff shortages led to thousands of flight cancellations over the Christmas weekend in the US, which could affect demand – although in the short term.

Investors continue to await a meeting of the Organisation of the Petroleum Exporting Countries and allies (OPEC+) on January 4, where it would be decided whether to go ahead with a planned production increase of 400,000 barrels per day in February.