Yemisi Izuora/Agency Report
There are indications that expected drop in Nigerian output has helped to push prices higher.
This scenario is coming as Royal Dutch Shell Plc and other firms said last week that it declared force majeure in a pipeline due to a leak.
Force majeure refers to a clause often included in commodity contracts that offer companies leeway when extraordinary circumstances, such as fires, natural disasters or war hinder their ability to fulfill obligations.
Oil exports from the Forcados pipeline are expected to be halted until April, Reuters reported.
This challenge will cut the country’s output by nearly 250,000 barrels a day.
Nigeria produces about 1.8 million barrels a day, according to the International Energy Agency.
The oil market is stuck in a tight trading range, said Mike Nielson, a senior derivatives trader at the Copenhagen-based Global Risk Management.
“At $36 we are selling and at $32 we are buying,” Mr. Nielson said. “Until this level is broken, we won’t make a decision.”
Also discussion among large producing nations about a possible production freeze has also boosted prices in recent weeks.
Saudi Arabia, Russia, Qatar and Venezuela announced that they are willing to freeze production at January levels. But market participants are skeptical that the deal would be effective without Iran’s participation.
Iran is expected to increase its production this year now that international sanctions have been lifted.
Moderates and reformers reportedly won key seats in Iranian elections and analysts say that could strengthen Iran’s resolve to increase its oil production.
Oil prices rose Monday on signs that U.S. drilling activity is hitting new lows, though new federal data showed that declines in U.S. oil production slowed in December.
Despite plummeting oil prices in the past year and a half, global crude output has increased as production in the U.S. remained high and the Organization of the Petroleum Exporting Countries has opted keep pumping at a fast clip.
The global crude-oil market is expected to remain oversupplied through the rest of the year.
The number of rigs drilling for oil in the U.S. fell by 13 last week to 400, the lowest level since 2009, Baker Hughes Inc. said late Friday. The oil market often reacts to the rig count on Monday, after traders have had time to digest the news.
U.S. producers have sharply cut spending on new drilling in response to low prices. But they have also cut costs and improved efficiency, so U.S. output hasn’t fallen as quickly as some market watchers had expected.
At the current drilling level, production will start declining at a faster pace this year, some analysts say.
“The U.S. energy industry continues to get hurt,” said Phil Flynn, analyst at the Price Futures Group in Chicago, in a note. “What we are seeing is U.S. output crashing and that will start to cut into the U.S. oil glut.”
However, data released late Monday showed that U.S. output barely fell in December from the prior month. U.S. production declined 0.5% to 9.3 million barrels a day in December, the U.S. Energy Information Administration said Monday, as onshore production in Texas and North Dakota fell but offshore output rose.