The decision by the Organisation of Oil Exporting Countries (OPEC) to pump 400,000 barrels per day of crude oil into the market on a monthly basis from August, yesterday pushed oil price to a record low of $69 per barrel, but Nigeria’s sweet crude, Bonny Light remains bullish at $75.23.
With gradual stability, notwithstanding the uncertainty in the market, analysts were hoping that the rally, which was heading to $80 per barrel would become a reality until the price nosedived.
Although Nigeria’s Bonny Light maintained its competitive edge, standing at about $75.23, Brent suffered more than 5.19 per cent loss, selling at $69.77 while WTI crude stood at $67 to a barrel.
Regarded as the worst blow since March this year, the current development is not only fueled by additional OPEC supply but weak fuel inventory data from the United States.
As climate policies continue to weigh on the oil markets, the oil market is expected to contract—a situation that will increase OPEC countries’ share of the global oil market from 30 per cent today to nearly 70-80 per cent.
After weeks of face-off, particularly between oil giants, Saudi Arabia and UAE, OPEC and its alliance had on Sunday agreed to incremental supply despite the re-surgency of the Delta variant of Covid-19 in many countries, including Nigeria.
Nigeria is usually faced with dilemma each time oil price increases or decreases. While the increase in the price stabilizes revenue for the government, subsidy on petroleum products reduces when the price of crude reduces given that the country has no functional refinery.
With 1.55 million barrels per day June quota for Nigeria, incremental supply into the market could enable Nigeria to increase activities in the oil sector thereby meeting the estimated benchmark in the current budget.
The Minister of State for Petroleum, Timipre Sylva had earlier said the quota system helped in balancing oil prices globally.
Last week, Energy Information Administration reported a crude oil inventory draw with builds in both gasoline and middle distillates, at 1 million barrels and 3.7 million barrels, respectively.
Earlier, tension had risen as analysts projected possible break up in the OPEC alliance due to the Saudi Arabia and UAE difference, the eventual settlement, therefore, erode uncertainty in the market but left a market downturn.
Head of global commodity strategy at RBC Capital Markets, Helima Croft had told CNBC that the agreement remained an indication that the market would continue to work together.
Some analysts, including experts at ING however remained optimistic about the oil price, insisting that the market would hover around $75 per barrel due to stabilizing demand.
“Healthy demand growth combined with moderate supply increases from OPEC+ will likely remain supportive for the oil market in short term at least,” ING strategists Warren Patterson and Wenyu Yao told Oilprice yesterday.