OIL prices, which dropped below Nigeria’s 2017 budget benchmark price of $44.50 per barrel, hovering around $43/barrel in the past two weeks, yesterday rose significantly across all grades and markets.
This is even as the United States production declines, easing concerns about deepening oversupply. International oil market reports show that the price of the premium grade, Brent Crude, rose from $46. 50 to $47.58 yesterday, while that of West Texas Intermediate (WTI) rose from $44.60 to $45.10 per barrel. According to Organisation of Petroleum Exporting Countries (OPEC), basket, which includes Nigeria: “The price of OPEC basket of fourteen crudes stood at $44.48 a barrel on Wednesday, compared with $44.23 the previous day.”
The OPEC Reference Basket of Crudes (ORB) is made up of the following: Saharan Blend (Algeria), Girassol (Angola), Oriente (Ecuador), Zafiro (Equatorial Guinea), Rabi Light (Gabon), Iran Heavy (Islamic Republic of Iran), Basra Light (Iraq), Kuwait Export (Kuwait), Es Sider (Libya), Bonny Light (Nigeria), Qatar Marine (Qatar), Arab Light (Saudi Arabia), Murban (UAE) and Merey (Venezuela).” The Chief Market Strategist, Forex Times, FXTM, Hussein Sayed, said that, “The ongoing fall in oil prices has driven risk-off sentiments across all asset classes.
“Back in November 2016, when OPEC and non-OPEC producers, including Russia, decided to cut production, most market participants believed that this would lead to a re-balancing of the market and the supply glut would come to an end.
Eight months later, U.S. shale producers increased the rate of drilling, Libya is pumping oil at the highest levels in four years, and the amount of oil that’s being stored in tankers jumped to a new high in 2017.” He noted that, “The key question most traders are asking is when oil will finally find support? At this stage, it’s hard to say where prices will bottom out.”
He cited the comments by Iranian oil minister, Bijan Zangeneh, that Iran is in discussions with OPEC members for further production cuts fell on deaf ears, meaning that comments from OPEC members are unlikely to influence prices. “With no hard data to encourage bulls to jump in, the risk to the downside will continue to persist.
However, I believe at low $40 or below, U.S. shale producers will start to suffer and drilling activities will most likely take a U-turn, meaning that U.S. and global inventories will start declining at a faster pace. “Supply is not the only justification for lower prices.
When looking at the other side of the equation we see that China’s demand is slowing, and it’s expected that 10 percent of the country’s refining capacity will shut down during Q3, which is another factor to worry about in the next couple of months,” Sayed added.
