January is History, February Now in Focus

Jim Brown
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January crude futures expired at the close of trading on Monday at $72.47 after a wild ride over the last week. With lows at $68.59 and highs at $74.69 over just the last eight days it was a violent expiration.

Now that January is behind us and worries over storage at Cushing are temporarily over the focus moves back to demand, inventories and the strength in the dollar. The February contract traded down to $73.17 on Monday as the two contracts moved toward each other in price at expiration. Immediately after the close the February contract began to move higher no longer tied to the January contract and free to find its own level.

At 3:AM on Tuesday crude prices are hovering just under $74 and OPEC ministers are all smiles at their meeting in Angola. Saudi Oil Minister Ali al-Naimi said OPEC will, "absolutely not" change its output quotas. "With oil at $75, everyone is happy and no one really needs to touch that hot iron." According to al-Naimi the price of oil is "perfect." After all OPEC members are cheating at the rate of an extra two million barrels per day and the price is holding.

Crude is still tied to the dollar and over the last week is starting to build in an Iranian security premium as well. After the OPEC meeting ends I suspect crude prices to remain relatively mild until year-end without a news event to stir up trouble.

That news event could come from Nigeria. The MEND rebels broke a month long cease fire to attack a pipeline 30 miles west of Port Harcourt. The rebels were trying to send a signal to the government to restart peace talks.

The president of Nigeria was hospitalized in November in Saudi Arabia. Talks broke off until he could return but the rebels are growing restless. You may remember several articles on this site in the last month about the record oil production in Nigeria because all the oil facilities closed because of the violence were restarting.

Those facilities can close again just as quickly if the MEND rebels decide to restart the confrontations. Nigeria produces the light crude that refiners want and at one point last year had seen production drop by nearly 25%. Cutting nearly a million barrels per day of light crude out of the global supply is a serious disruption.

Shell is getting fed up with the constant and never-ending violence and said on Monday it wanted to sell up to $5 billion of its assets in Nigeria. Potential buyers could be Sinopec or Nigeria's Oando Plc. However, the Nigerian Oil Minister said Shell cannot sell its interests without permission from Nigeria and according to the minister they have not asked for permission. Shell is the oldest international oil company in Nigeria. Apparently even old timers have their limits on how much hassle they are willing to ignore before calling it quits.

Jim Brown