How attacks on oil installations raise crude oil price

The Niger Delta Avengers (NDA) were a major driver of the rally in crude oil markets over the past several months, as the outage of roughly 600,000 barrels per day helped push up crude oil prices. Crude oil price rose in June to average $50 per barrel, a 30-day ceasefire between the NDA and the Nigerian government led to a few weeks of relative calm, and Nigeria’s Minister of State for Petroleum Resources, Dr Ibe Kachikwu, said that Nigeria was able to bring back a large chunk of the distrusted supply bringing output up from 1.4 million barrels per day to 1.9 mb/d at the end of June, but still down from the 2.2 mb/d Nigeria produced before the vicious campaign began a few months ago.

Kachikwu also said that the government was aiming to ratchet up output to 2.2 mb/d in July as oil pipelines saw repairs and wells were brought back online. But NDA could kill off that dream with a new round of attacks. However, basket price of crude for OPEC members averaged $44 per barrel during the first week of July following increasing supplies from Iran and Venezuela.

Goldman Sachs previously credited the NDA with a major role in the more than 80 per cent rally in oil prices between February and May. Following the ceasefire, Goldman Sachs revised its analysis for oil, warning of a potential slide in oil prices if peace could be maintained in Nigeria.

“A normalisation in production, even over several more months, would create downside risk to our $50/bbl 2H16 price forecast as it would bring the global oil market close to balance over that time period,” Goldman concluded in a recent research note. The investment bank may have to, once again revise its projection for oil prices in the second half of the year. If the NDA is back, oil prices could rise higher than previously expected.

When you compare the effects of NDA attacks, to Canada’s recent wildfires which resulted in loss of around  one million barrels per day of crude oil, the supply outage faced by Nigeria is somewhere close to 500,000 barrels per day. However, Nigeria’s problem is much more serious.

The supply disruption caused by Canadian wildfires was mostly related to the loss of manpower and evacuation of personnel. This disruption will probably not continue for too long. Looking at Nigeria’s case, it can be seen that the country’s economy is already struggling because of the slump in oil prices.