Slight Price Gains on Friday Only Temporary as Nigeria, Libya Herald Further Market Turmoil

Unsold crude as well as increased production is adding to the market pressure.

Oil prices rose slightly on Friday on the strength of a production glitch in Nigeria, but analysts warn that the glitch is temporary - and that fundamentals will continue to negatively impact the market.

Brent settled up 29 cents at $48.15 per barrel and West Texas Intermediate rose 19 cents to $45.83 per barrel, but this still puts both benchmarks at a weekly decline of nearly 4 percent thanks to earlier news that U.S. stockpiles climbed unexpectedly by 3.3 million barrels to 513 million barrels, contrary to the 3.5 million drop many forecasters had predicted.

The uptick was in response to the Shell Development Company of Nigeria declaring force majeure on Nigerian Bonny light crude oil after a hole had been drilled into the Trans Niger Pipeline, causing a leak.

While Commerzbank says the leak demonstrates that "the production trend in Nigeria is far from stable," Gene McGillian, manager of market research at Tradition Energy, warned that Friday's market gains are nothing "more than a temporary stabilization" and that traders were short-covering ahead of the weekend.

Rob Haworth, senior investment strategist at U.S. Bank Wealth Management, sympathized that "This is a market that I think speculators have been hoping will return to normal very quickly and prices will rally strongly; the problem is, fundamentals are not cooperating very quickly.

"There has been a lot of hope that demand will expand more rapidly and that supplies will come in quickly; neither has been the case."

A like-minded Phil Flynn, senior market analyst at Price Futures Group, noted that "We've gone down pretty much since the OPEC extension" announced last month; "That was kind of the game-changer."

He is referring to the critical derision accompanying the Organization of the Petroleum Exporting Countries' decision to extend production cutbacks to March of next year but failing to deepen the cuts, which most experts say is necessary to combat rising production in other countries and bring the market closer to balance.

OPEC has also come under fire for renewing the cutback exemptions for Libya and Nigeria, which has prompted Amrita Sen, chief oil analyst for Energy Aspects, to point out that "They've added 600,000 barrels per day between the two of them, and that's half the OPEC cuts."

Adding to troubling revelations such as Libya contributing nearly triple the volume of crude to global markets compared with last year is that Nigeria has over 60 million barrels of unsold crude, according to traders of its oil.

This exceeds the level reached when global oversupply peaked two years ago, and Reuters says more export plans are a week away, "likely bringing more than 50 million extra barrels."

Once more, the numbers-crunchers forcefully - and perhaps futilely - reiterated OPEC's best course of action to take: James Davis, analyst for FGE, said, "It's very simple: they need to cut deeper to maintain the status quo."

Earlier this week it was reported that as well as Libya and Nigeria, focus is increasing on Argentina and Canada as potentially significant contributors to the global glut.