Earlier this week, Goldman unleashed the latest oil rally when it admitted that while the oil market will take far longer to rebalance due to rising low-cost oil production, it said that material supply disruptions are providing a boost to near-term prices. Goldman provided the following visualization of unplanned ongoing outages ...
... where it highlighted the recent stoppages in Canada, Nigeria and Libya as the most prominent.
In a surprising twist, it appears that virtually all three of the main disruptions choke points are being resolved far quicker than expected.
First on Canada and its ongoing wildfire, the WSJ reported that the threat from forest fires in northern Alberta receded further on Thursday with the blazes moving away from oil-sands production facilities and a nearby evacuated town as cooler, wetter weather aided firefighting efforts, provincial officials said. The out-of-control wildfire spread to more than 1.25 million acres, up from just over one million acres on Wednesday, but the front line moved away from critical infrastructure to a remote area on the border of neighboring Saskatchewan province, the officials said.
Firefighters kept blazes away from two major oil-sands production complexes threatened earlier in the week, helped by lower temperatures and trace amounts of rain, said Chad Morrison, the Alberta forest ministry’s chief wildfire official.
"The threat definitely has diminished around the communities and the oil-sands facilities," Mr. Morrison said at a news conference in Edmonton. “We held the fire yesterday in all critical areas.”
This means that oilsands production is gradually coming back online and full capacity will likely be fully restored in the coming days:
No production facilities have been damaged by wildfires, but the threat has forced several large oil sands producers to shut down mining and well sites for more than two weeks, reducing Canadian oil production by at least one million barrels a day, or about 40% of the country’s total oil-sands output. The spread of fires forced some operators to abandon plans laid last week to restart. Late Thursday, Exxon Mobil Corp.’s Canadian unit Imperial Oil Ltd. said it had partially restarted operations at its Kearl oil sands mine about 47 miles northeast of Fort McMurray.
Just as important is that the long-running export crisis in Libya also appears to be on the verge of a solution. According to Bloomberg, oil exports are set to resume Thursday from the port of Hariga in eastern Libya, easing a bottleneck and allowing for crude production to increase after competing administrations of the state-run National Oil Corp. reached an agreement in the divided country.
The tanker Seachance is loading 650,000 barrels of crude at Hariga for the U.K., Omran al-Zwai, a spokesman for NOC unit Arabian Gulf Oil Co. known as Agoco, said by phone on Thursday. The cargo would be the first international shipment from Hariga since the United Nations blacklisted a tanker last month following complaints from authorities in the west of the country. NOC’s competing leaderships reached an agreement to resume exports from Hariga earlier this week. Agoco will be able to boost crude output to 120,000 barrels a day from 90,000 before the shipment, Al-Zwai said, as the company’s production has been limited by a lack of storage at the port. Libya produced a total of 310,000 barrels a day in April, data compiled by Bloomberg show.
The competing NOC administrations agreed to restart shipments from Hariga after holding talks in Vienna earlier this week, Elmagrabi said Monday. Officials at the western NOC administration in Tripoli couldn’t immediately be reached for comment. The shipment from Hariga comes after Agoco reached an agreement on Wednesday with the NOC’s eastern administration to restart international exports from the port, said Nagi Elmagrabi, chairman of the eastern NOC.
Libya pumped about 1.6 million barrels a day of crude before the 2011 rebellion that ended Moammar Al Qaddafi’s 42-year rule. It’s now the smallest producer in the Organization of Petroleum Exporting Countries. Since Qaddafi’s ouster and death, armed militias have also competed for control of the nation’s oil facilities.
Finally, and perhaps most importantly, is Nigeria, whose offline high quality bonny light crude has been seen as a major catalyst for the recent spike in prices due to the actions of such groups as the Niger Delta Avengers, and where Bloomberg notes that an oil tanker was said to have finally loaded up Nigeria’s Qua Iboe crude today, when a shipment was made on the SCF Khibiny, a 1 million bbl carrying Suezmax. It adds that the ship signals today that its status is "under way" having previously been anchored.
The reason: "people who had blocked bridge access to Qua Iboe terminal no longer there" according to Bloomberg.
In summary, after oil disruptions were represented by Goldman as a catalyst for higher oil prices, it now appears that the three major bottlenecks are being eliminated, and from a supply shortage, the oil market will now re-enter near-term glut as all of these mothballed operations scramble to restore recent production capacity. Meanwhile, the organization formerly known as OPEC continues to produce oil at an unprecedented pace as previously documented.
We are curious how long it will take the upward momentum-chasing oil algos to realize that the near-term supply picture has just changed dramatically.