Oil outages take 3.6 MMBOPD off the market in May

Unplanned global oil supply disruptions reached their highest monthly level since 2011 when the EIA began tracking to what extent oil outages were affecting output. From April to May, disruptions grew by 0.8 MMBOPD, averaging more than 3.6 MMBOPD, the agency reported.

The majority of the increased outages in May came from Canada, Nigeria, Iraq, and Libya—more than offsetting barrels coming back to the market from Kuwait, Brazil and Ghana. Along with rising oil demand and falling U.S. crude oil production, increased disruptions led to a month-over-month $5 per barrel increase in Brent crude oil spot prices in May, helping to push the international benchmark, along with its U.S. counterpart WTI, above $50 per barrel for the first time in 2016.

EIA Monthly Unplanned Oil Outages

Wildfires in Fort McMurray, Canada, played a large role in the oil outages recorded in May, but longer-term outages are mostly driven by political conflict, said the EIA. Global oil outages are expected to decrease in June as work restarts in Canada, but disruptions tied to political disputes or conflicts often last for years. In the first five months of 2016 alone, political disputes accounted for nearly 90% of unplanned disruptions.

EIA Cause of Global Unplanned Oil Outages

Nigeria continues to be a flashpoint

In Nigeria, crude oil production fell to an average of 1.4 MMBOPD in May, the lowest monthly level since the late 1980s, due to increased attacks on oil and gas infrastructure by rebel groups attempting to undermine the government. For the first five months of 2016, Nigeria’s supply disruptions averaged 0.5 MMBOPD, 0.2 MMBOPD more than in 2015. The EIA expects that the political disruptions in Nigeria, formerly Africa’s largest oil producer, will remain elevated through 2017.

The Niger Delta Avengers, one of the many groups responsible for attacks on oil and gas infrastructure in the oil-rich Niger Delta, continued their assault this week with the destruction of another Chevron (ticker: COP) Nigeria Limited pipeline after the government asked the group to negotiate.

Following the destruction of the pipeline, the militant group said: “This is to inform the general public that we are not negotiating with any committee. If Federal Government is discussing with any group, they’re doing that on their own.”

The group’s activities has many refineries worried Nigeria will be unable to make crude oil deliveries, prompting some to cease purchases from the African country, reports Vanguard NGR. Four of Nigeria’s oil grades, including the largest stream, Qua Iboe, have been placed under force majeure over the last month.

The hesitancy from refiners to purchase from Nigeria has put the countries crude grades under downward pressure. Differentials between Nigerian crudes and Brent have increased as cargos remain unsold, meaning the country is unable to enjoy the same benefit in rebounding oil prices as other producers.

Nigeria oil and gas map

Source: ENI

 Other rebel groups taking a cue from Niger Delta Avengers

Compounding the problem faced by Nigeria’s government, other groups are beginning to increase attacks against oil and gas assets in Nigeria as well. A new group calling itself the Ultimate Warriors of Niger Delta is also making demands of the government, and promising to step up violence if they are not met.

The Ultimate Warriors are demanding that the $16 billion Export Processing Zone (EPZ) project and the Federal Maritime University established by former president Goodluck Jonathan be completed and start operations. The group has also demanded that 60% of the profit from the oil-rich region be allocated to those living in the Niger Delta, reports Nigerian news source Today.

In a statement, the group said part of the profits should be returned to the region “because we are the ones suffering the brunt of oil pollution and degradation in the region.” The group also called for the government to give jobs protecting the pipelines back to locals as well.

“We are giving the Federal Government two weeks ultimatum to start the fast-track of both the EPZ project and Maritime University. Also if within this two weeks we did not see the moves to award the pipeline surveillance jobs and allocation of 60 percent oil blocs to Niger Deltans, we shall shut down Chevron BOP and Okan Platform as well as the MEREN Gas Gathering Compression Platform and blow up Chevron Tank Farm.”

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