Oil Rallies Monday Morning

NEW YORK (DTN) -- New York Mercantile Exchange oil futures rallied Monday morning on the back of supply disruptions in Nigeria and elsewhere and a bullish shift in investment bank Goldman Sachs's view of the oil market, saying the market is rebalancing much faster than previously thought.

At last week, NYMEX June West Texas Intermediate crude futures surged $1.25 to $47.46 bbl and the ICE July Brent contract rallied $1.31 to $49.14 bbl. In products trade, NYMEX June ULSD futures gained 3.81cts to $1.4412 gallon and June RBOB futures jumped 3.33cts to $1.6215 gallon.

Wall Street equities were mixed while the dollar fell versus peer currencies, with a stronger dollar bearish for the oil complex.

Militant attacks on oil facilities in Nigerian have intensified over the past two weeks, forcing Shell, ExxonMobil and Chevron to declare force majeure on their exports. Wire reports said 600,000 bpd of Nigerian production has been shut down in the past week, reducing the country's supply to a 20-year low at 1.65 million bpd.

Libyan output has been halved to 300,000 bpd due to continued violence while Venezuelan oil output dropped 188,000 bpd this year due to power outages and underinvestment.

Those disruptions came as Canada's oil sands production of 1.0 million bpd disrupted two weeks ago by wildfires is gradually being brought back online, but at the same time, production by the United States has declined in the last year, contributing to the general sense that the market is starting to rebalance.

Goldman Sachs released its analysts' note today, raising its price forecast for WTI to $45 bbl average in the second-quarter from its prior estimate of $35 bbl. The bank, which was bearish only months ago and predicted a $25 price for WTI, said it has shifted to a bullish view because the market has flipped from a surplus to a deficit much earlier than its analysts expected.

The bank also cited rising demand from China, India and Russia, adding that supply outages in Canada, Nigeria, Libya and Venezuela have taken 2 million bpd out of the market, offsetting higher production by Iran and Iraq.

Goldman's is not an outlier view because Barclays and Bank of America Merrill Lynch also this morning said oil prices will recover in the medium term due to a combination of a dovish Federal Reserve, weaker dollar and improving economy in emerging markets. BoA projected WTI will rise to $54 bbl by December and average $59 through 2017.

Last week, the International Energy Agency and the US Energy Information Administration raised their respective global demand estimates while the Organization of Petroleum Exporting Countries left unchanged its demand growth outlook.

George Orwel can be reached at george.orwel@dtn.com