A Review of the Nigerian Energy Industry

Oil falls as Hurricane Isaac spares Gulf facilities

30 August 2012, Sweetcrude, HOUSTON – UK’s North Sea Brent crude oil fell more than $1 per barrel on Wednesday as Hurricane Isaac hit land in Louisiana while leaving US Gulf oil production facilities without significant damage.

North Sea Brent crude oil fell more than $1 per barrel on Wednesday as Hurricane Isaac hit land in Louisiana while leaving US Gulf oil production facilities without significant damage.

Worries about supply disruptions resulting from the hurricane pushed Brent to a high of $115.50 per barrel on Monday, while Nymex futures hit a peak of $97.72.

By 0945 GMT on Wednesday, Brent crude oil futures for October were down 90 cents per barrel at $111.68 after hitting an intra-day low of $111.50.
US light crude oil was down 80 cents at $95.53.

The US energy industry shut most facilities in the Gulf of Mexico, cutting the region’s oil production by more than 90% during the precautionary hiatus.

An unexpected rise in US crude inventories and data showing weakening consumer confidence in the country added to the bearishness, Reuters reported, although lingering tensions in the Middle East supported prices.

“The hurricane in US has already made landfall and expectations are that oil production and refineries in Gulf Coast will be back onstream in the near-term,” Victor Shum, a senior partner at oil consultancy Purvin & Gertz in Singapore, told Reuters.

“That has resulted in the drop in oil futures,” he said.
Hurricane Isaac crashed ashore in south-east Louisiana on Tuesday, bringing high winds and soaking rains that pose the first test for multi-billion dollar flood defences put in place in New Orleans after Hurricane Katrina devastated the US Gulf Coast seven years ago.

Ongoing concerns about the global economy and uncertainties about the US Federal Reserve’s stance on further easing were also muddying the outlook for oil demand, adding to the pressure on prices.

While data showed home prices rose in June for a fifth-straight month, another measure of US consumer confidence slipped to a nine-month low in August as Americans were more pessimistic about business and labour market prospects.

“The economy has been slow to recover with limited job opportunities, heightened international risks and political uncertainty,” Bank of America-
Merril Lynch senior US economist Michelle Meyer said in a report.
“This will keep consumers on edge and the economic growth sluggish.”

Further cues on whether the Federal Reserve is leaning towards more stimulus is expected from chairman Ben Bernanke’s speech on Friday at an annual meeting at Jackson Hole, Wyoming.

Bernanke has used the event for the past two years to indicate the Federal Reserve’s policy intentions.

“The market is playing a guessing game now on QE3, but the weak consumer data has been bearish for oil futures,” said Shum.

A poll of 61 economists gave a 45% chance of the Federal Reserve announcing a third round of quantitative easing, or QE3, after its policy meeting on 12 and 13 September.

Adding to investor uncertainty are the mixed signals from policymakers on a White House plan to release some of its strategic reserves to rein in rising prices.

US oil has gained 8.8% so far this month – on track for its biggest monthly rise since October last year – while Brent has added about 7%.

Sources told Reuters earlier this month that the White House was “dusting off” old plans for a possible release of oil reserves.

But the head of the International Energy Agency (IEA) on Tuesday voiced her strongest opposition yet to a release of emergency oil stocks, risking a rift with the IEA’s most influential member, the US, over strategic reserves policy.

“Higher prices alone are not the trigger for IEA collective stock release and at this moment we see that the crude oil market is adequately supplied,” Maria van der Hoeven, executive director of the IEA, which represents 28 energy importing countries, said in an interview.

Prices were also pressured lower by an unexpected rise in US crude oil inventories as indicated by a report from the American Petroleum Institute.

US crude oil stocks rose 5.5 million barrels last week, against expectations for 1.5 million barrel drop.

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  • Even though marginal, the drop in oil prices are a welcome development especially since Nigeria is a net importer of petroleum.