Nigeria & Oil: Still Relevant?

July 06, 2009

 

2009

I think that paints the picture, but let's look briefly at what's happened in 2009 so far:

 

Crude Oil % Change From Previous Day
March 6, 2009 45.43 4.3%
March 7, 2009 47.01 3.5%
March 9, 2009 45.68 2.8%

 

On March 7, Royal Dutch Shell declared force majeure on Forcados oil shipments due to pipeline explosions. Oil prices rose 3.5% during the day from $45.43 to $47.01.

 

Crude Oil % Change From Previous Day
May 22, 2009 61.15 1.1%
May 26, 2009 62.48 2.2%
May 2,7 2009 63.41 1.5%

 

On May 25, Chevron shut 100,000 bpd of production due to militant strikes, and oil prices responded by going up 2.2% to $62.48 the next trading day.

 

Crude Oil % Change From Previous Day
June 22, 2009 67.09 -3.6%
June 23, 2009 68.81 2.6%
June 24, 2009 68.14 -1.0%
June 25, 2009 69.7 2.3%
June 26, 2009 69.16 -0.8%
June 29, 2009 71.47 3.3%
June 30, 2009 69.82 -2.3%

 

On June 23, Eni declares a force majeure on shipments. Crude oil prices rise 2.6% on the day, after falling 3.6% the day before, but then give much of that back the day after.

On June 29, Royal Dutch Shell announced that it shut production to investigate reports of recent attacks by militants. The exact amount of production shut in was not announced, but the market still moved up 3.3% on the day. The news must not have been that bad, if you look at oil prices, because oil dropped 2.3% the very next day.

 

What Does It All Mean?

The point (and yes, there is one) of this detailed history lesson is simply this: Context matters, and it matters a lot when it comes to news.

You could interpret the beginning of this lesson this way: Since oil rises, at least modestly, on bad news from Nigeria, you should trade into the news as soon as possible. Sounds easy, but getting that timing might be nearly impossible. And worse, as the situation in Nigeria has continued to deteriorate, the real impact of another piece of bad news starts to mitigate, meaning it is all the more likely that "headline gains" will be given back extremely quickly.

Plus there is a lot more going on than unrest in Nigeria that affects oil prices - OPEC, for one. The market waits with baited breath to see if a quota cut will be announced - though even in beleaguered Nigeria it's clear they have no teeth. Nigeria's upper limit is currently set at 1.67 million bpd - roughly 70,000 bpd less than what the state-run oil company says was pumped in June even after all the chaos. Reuters' survey reports that Nigeria will produce 2 million bpd in July and 1.64 million bpd for August.

It's all about context. With lower oil demand and lower imports coming from Nigeria, news out of Nigeria moves oil a bit less.

 

Total US Imports vs. Imports from Nigeria

 

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