Gunfire in the Gulf, Rebel Bombings, and Labor Disputes Fire Up Oil

By Jason Simpkins
Associate Editor

An outpouring of political tension around the globe raised concerns about oil supply, pushing oil prices up as much as $3.15 a barrel Friday, close to its all-time peak of $119.90 a barrel set last Tuesday.

In the North Sea, the Forties Pipeline System, a major transportation network that pumps about 600,00 barrels per day (bpd) from more than 50 fields situated throughout the region, was forced to close due to a labor strike at a key Scottish refinery. Ineos Group Holdings PLC was unable to resolve a pension dispute with union officials at its Grangemouth refinery, which supplies steam power to the pipeline.

The shut down "has a profound impact on both crude and product balances," Thomas Stenvoll, an energy strategist at UBS AG (UBS), told Bloomberg News.

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The Forties Pipeline System has the capacity to transport more than 1 million bpd, but has averaged only 614,000 bpd over the past six months. Exports are expected to average 600,000 bpd in April.

In Nigeria, a strike at Exxon Mobil Corp. (XOM) forced the company to take 200,000 bpd off the market. Workers "commenced a safe and orderly shut-in of production" to push for more pay, after a rash of bombings by Nigerian rebels made for a hostile working environment.

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The Movement for the Emancipation of the Niger Delta said Friday that its fighters hit a Royal Dutch Shell PLC (RDS.A, RDS.B) pipeline late Thursday – the group's fourth attack in a week. Shell was forced to cut 169,000 bpd of Bonny Light crude oil output.

"Our candid advice to the oil majors is that they should not waste their time repairing any lines as we will continue to sabotage them," the rebel group said in statement.

Bad news was made worse when a ship contracted by the U.S Military Sealift Command fired "a few bursts" toward two speedboats believed to be Iranian.

It was the third time this year that the United States accused Iranian vessels in the Gulf of threatening U.S. vessels. Earlier in April, the Navy said three speedboats approached a patrol boat in the Gulf but stopped after a warning flare was fired. And in January, five Iranian speedboats approached three Navy war ships in the same area. 

Iran described that incident as a routine event of identification while U.S. officials said the Iranian vessels had behaved in a threatening manner. Either way, tension between the United States and the OPEC nation are certainly at a boil, adding to pressures already present in the oil market.

A weak dollar, high demand, and low refinery utilization have also helped the price of oil skyrocket by 81% in the past year.

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