Oil Settles Near $46 Amid Nigeria Force Majeure, US Fuel Glut

(Bloomberg) - Oil closed near $46 a barrel in New York as the market weighed a force majeure declared by  Exxon Mobil Corp. on crude shipments out of Nigeria against excess U.S. oil and product inventories.

Futures rose 0.6 percent after fluctuating between losses and gains in New York. Exxon declared force majeure on shipments of Nigeria’s biggest crude export grade. China processed a record amount of crude in the first half of 2016 as economic growth last quarter exceeded estimates, adding support to the market. U.S. crude production, on the other hand, rose for the first time since early June last week and fuel stockpiles climbed, according to an Energy Information Administration report released on Wednesday.

“We have bullish news. We have bearish news. It’s a moody market,” Phil Flynn, senior market analyst at Price Futures Group in Chicago, said by telephone. “The big bear case is we have this flood of product and it’s going to take some time to overwork that.”

West Texas Intermediate crude for August delivery rose 27 cents to settle at $45.95 a barrel on the New York Mercantile Exchange after earlier dropping as low as to $45.05. Total volume traded was about 8 percent below the 100-day average. WTI posted a 1.2% gain for the week.

Brent for September settlement climbed 24 cents, or 0.5 percent, to end the session at $47.61 a barrel on the London-based ICE Futures Europe exchange and posted a 1.8 percent gain for the week. The global benchmark crude traded at a 96-cent premium to WTI for September delivery, the widest since June 30.

Weighing Options

“The market seems to be at the point where it’s weighing its options whether or not it can move higher,” Harry Tchilinguirian, head of commodities research at BNP Paribas SA in London, said by telephone. “There’s still a bit of uncertainty in Nigeria, but then again, the situation in Nigeria isn’t something new.”

Force majeure -- a legal clause that allows Exxon to stop shipments without breaching contracts -- was declared on Qua Iboe crude after “a system anomaly observed during a routine check of its loading facility,” the company said in an e-mailed statement Friday. 

Qua Iboe is the third Nigerian crude grade to be declared under force majeure currently, joining a force majeure declared on Brass River in May and Forcados in February, according to information from companies compiled by Bloomberg.

China processed a record amount of crude on a daily basis in the first half of 2016 as plants boosted operations after getting import licenses. The country’s domestic oil production dropped 4.6 percent to 101.59 million metric tons in the period, the lowest for that period since 2012, according to data from the National Bureau of Statistics on Friday.

The world’s second-biggest economy’s gross domestic product rose 6.7 percent in the second quarter from a year earlier, compared with 6.6 percent seen by economists Bloomberg surveyed.

$40 Oil

Oil has traded between about $44 and $51 a barrel since early May and has climbed from a 12-year low in February amid a string of supply disruptions including attacks in Nigeria. While there’s still a consensus that the worst of the oil glut is over, the International Energy Agency cautioned this week that “the road ahead is far from smooth” amid seasonal weakness in demand and the return of some halted supply.

Analysts including BNP Paribas SA and JBC Energy GmbH warned prices may sink toward $40, due in part to seasonal demand weakness. Crude fundamentals are weaker than many realize, according to Julius Walker, senior consultant at JBC Energy in Vienna.

“Inventories are still high, both for crude and products. Refining margins have been weak and there have been some reports of run cuts in the U.S. and Asia,” Michael Wittner, the New York-based head of oil-market research at Societe Generale SA, said by telephone. “It’s not a bullish market. It’s a market that deserves caution.”

U.S. inventories are brimming after two years of surplus production and demand for gasoline -- the key driver of prices in summer -- is proving to be disappointing. Stockpiles of the fuel rose by 1.21 million barrels last week and refiners reduced operating rates by 0.2 percentage points to 92.3 percent of capacity, according to the EIA report.


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