Oil prices spiked overnight after Shell shut down production at a Nigerian oil field that produces about 200,000 bpd. The shutdown came after a rebel attack on the installation. This was a rare offshore attack against a platform that is 65 miles from land. The rebels said they were thwarted from blowing up the control room that would have crippled production a lot longer.
On Wednesday everyone thought conditions were improving in Nigeria after a planned workers strike was averted. Oil prices fell intraday as the tensions eased. The Nigerian oil ministry said the strike was averted after it persuaded Chevron to remove 70 expatriates from its work force.
The cooling of tensions offset another weekly drop in U.S. crude inventories. The -1.2 million barrel drop was the fifth consecutive weekly drop. Gasoline inventories also fell by -1.2 million barrels but distillates rose +2.6 million barrels. Crude inventories are now 14.2% below 2007 levels. Refiners are dipping into inventory for crude rather than buy new oil at $135 a barrel. The refinery crack spread dropped to $8 from $17 over the past two weeks due to the high price of oil.
There are rumors beginning to make the rounds that Saudi Arabia is going to announce another 500,000 bpd production increase after the oil conference this weekend. Reportedly the earlier 200,000-barrel announcement was a trial balloon to see how the market would react. Saudi feels the need to take this step to push prices lower and probably even more importantly prove they can do it.
There are quite a few analysts who believe Saudi is already at full production and the claimed excess capacity is just propaganda. If Saudi can increase production by another 500,000 bpd and maintain it for several months then the price of oil could drop sharply. It would not even have to be good oil. They could pump their lower quality crude and ship it to America and pay to have it stored. This would show up in the weekly inventories and depress prices. The weekly inventory numbers don't list the various grades in inventory just the quantity. With crude futures expiring on Friday and the meeting on Sunday it could be an interesting Monday for crude prices.