Another Day, Another Dollar
Crude prices rose to $119.93 on Sunday night after BP shut off a pipeline that carries 40 percent of the oil produced in the U.K. because of a strike at a refinery in Scotland that supplies power to the pipeline system.
The pipeline was shutdown completely at 6:AM on Sunday morning and even if the strike were to end immediately it would take several days to get the entire pipeline system back into operation. The Forties Pipeline System ships about 700,000 barrels per day from more than 50 fields in the North Sea. Those fields will be forced to close as well with nowhere to transport the oil backing up in their holding tanks. Over 1000 striking workers at the Grangemouth refinery in Scotland went on strike in a dispute over pensions. The 200,000 bpd refinery has also been shutdown. A spokesman for the refinery said the impact of the strike would be felt for weeks. Grangemouth supplies 95% of the fuel used in central Scotland. The last time it was shutdown was in World War II and officials said it could take weeks to restart.
A union spokesman said there were no talks underway or planned. The shutdown also cutoff 3 billion cubic feet of natural gas that is shipped through the system on a daily basis.
In other news OPEC president Chakib Khelil said OPEC will not consider increasing crude output before September even though record oil prices may cause a global economic recession. "OPEC will not increase crude oil output. Supply is more than sufficient in the international market. Prices are not the consequence of demand and supply they are the consequence of speculation. If there is an economic recession it is the fault of the U.S. subprime crisis." September 9th is the next meeting to discuss production quotas.
In Nigeria roughly 58% of their total capacity is currently offline following an ongoing oil workers strike and a series of recent militant attacks on energy infrastructure. Exxon produces nearly 800,000 bpd in Nigeria and it is almost entirely shut in because of worker strikes. Shell has more than 690,000 bpd shut in due to rebel attacks on pipelines and oil facilities. According to Dow Jones Newswires estimates roughly 1.44 mbpd of Nigeria's total capacity of 2.5 mbpd is now offline.
It is surprising that oil prices are not already over $120 given the numerous problems plaguing the global production. This is supposed to be the period of spring price declines before prices normally cycle higher beginning in May. Since we saw no decline and conditions seem to be getting worse instead of better we could see significantly higher prices before summer is over. If hurricanes appear in the Gulf of Mexico we could see $150 oil. Time to by a bicycle.