Supply Disruptions Highlight Tightening Oil Market

Oil prices rose 3% on Thursday as a massive wildfire near Canada's oil sands region and escalating tensions in Libya stoked investor concern over a near-term supply shortage. Interestingly, over the past year the market has not priced in any supply disruptions (given the ongoing market oversupply), however that appears to be changing. In Canada, wildfires caused the evacuation of 88,000 people in Fort McMurray and numerous pipelines in the region have been shut in disrupting output at several facilities. In Libya, the country's already crippled oil production remains at risk of further disruption from a stand-off between eastern and western political factions. Overall, unplanned outages within OPEC, including Libya, stood above 2 million boe/d (the highest in five years). The events in Canada and Libya highlight what has turned out to be a key feature in 2016, which is a sequence of unexpected supply disruptions supporting oil prices. Overall, tightening market fundamentals continue to point to a potential global oil supply deficit as early as Q3/16.