Oil bulls are hanging in there by their fingernails but hanging in there nonetheless. Yesterday the bears on the NYMEX did manage to breach the 62% retracement in spot WTI at 58.59, albeit briefly. The market quickly snapped back off that key level of support, only to fall again towards the close. As such, the market is teetering.
What really impressed us with yesterday’s sell off was that it occurred despite the introduction to three seemingly bullish headlines…
- Further dollar weakness
- Rebound in equities
- Further unrest in Nigeria
As far as the latter is concerned, recall, three weeks ago the Nigerian government offered the main militant group in the country, MEND (Movement for the Emancipation of the Niger Delta), amnesty in an attempt to end attacks by the group on the country’s oil infrastructure.
However, the plan was flatly rejected by MEND and the group has since stepped up efforts to disrupt the flow of oil. Yesterday militants carried out a successful attack at a tanker terminal in Lagos, Nigeria’s commercial capital.
That is a concern. MEND typically carries out its attacks against facilities in the southern Niger Delta states; from the Escravos terminal in the Delta State through to the Qua Iboe terminal in the state of Akwa Ibom. Thus, with the attack in the state of Lagos, MEND has increased its reach away from its traditional base of operations.
Be that as it may, crude oil futures in London and New York did not react with any sort of uplift from this headline. As we have noted in The Schork Reportrecently, the bull’s inability to generate any momentum on the rash of bullish headlines (Nigeria, Iran, U.S. dollar… etc) is a potential telltale of further weakness in the market.
Meantime, in the wake of yesterday’s attack in Lagos, the Nigerian government released Henry Okah from jail. Mr. Okah is thought to be one of MEND’s leaders and had been imprisoned since 2007. According to various media sources, MEND had made Okah’s release a condition for ending its attacks against oil and gas facilities. As we noted a couple of weeks ago at the start of the latest (and surely not last) flare up in Nigeria, U.S. imports from Nigeria through the first four months of this year have been cut in half, down 63.4 MMbbls from the first four months of 2008.
Consequently, Nigeria’s share of the U.S. import market dropped from 11% to 6% year-on-year and the country has since slipped from the fifth largest supplier of oil to the United States to the sixth largest supplier.
Furthermore, in light of the improving situation in Iraq, odds are shortening that come this time next year Nigeria’s share of the largest oil market in the world (1 in 4 barrels) will be supplanted once again.
Baghdad’s goal is to boost production from its current pace of 2.3 MMbbl/d to 2.6 MMbbl/d by the end of this year and to 2.8 MMbbl/d within two years.
Stephen Schork is the Editor of, "The Schork Report"and has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.