BusinessDay
Nigeria's leading finance and market intelligence news report.

Nigeria’s sweet crude bullish at $73 despite supply volatility

Nigeria’s Bonny Light maintained its competitive edge, standing at about $73 amid expectations that recovering demand from the United States to India and Europe will further tighten global crude markets.
The price of Bonny Light, a high grade of Nigerian crude oil, and other riskier assets have tumbled in recent weeks on concern over the impact on the economy and crude demand from surging cases of the COVID-19 Delta variant in the United States, Britain, Japan and elsewhere.
For Africa’s biggest oil-producing country, optimism about greater fiscal space is being dampened by the emergence of the new strand of covid 19 virus questioning once again the revenue diversification efforts of the government.

Most market analysts expect demand to stay strong and receive support from falling oil stockpiles and rising vaccination rates.
“The market clearly is more concerned about the supply-demand deficit being in deficit, and that the growth will continue, and that we’re under-supplied in the near term,” Rebecca Babin, a senior energy trader at CIBC Private Wealth, US said in a note seen by BusinessDay.
ANZ Research analysts said in a report that the market was starting to sense the OPEC+ increase will not be enough to keep the market balanced and inventories in the United States and across OECD countries would continue to fall.

“The demand concerns proved to be exaggerated, which is why oil prices have since recovered. Despite the expansion in oil supply, the oil market will remain slightly undersupplied until the end of the year,” Commerzbank said in a note.

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Notwithstanding the extra oil revenue earnings that may accrue to Nigeria as a result of the ongoing oil rally driven by renewed demand, sustained subsidy payments and lower production continue to take a toll on the country’s forex reserves and fiscal position.

The country’s dependence on fuel importation due to the lack of local refining capacity has left fiscal authorities in a challenging situation when other oil producers are building their excess crude accounts.
In the midst of the uncertainties, Shale producers, Nigeria’s main competitor, continue to gain more momentum and recovering further from last year’s market slump.

In recent weeks, the Shale industry has held off on boosting production and has focused on strengthening balance sheets, repaying loans, and rewarding shareholders.

As a result of the rallying commodity prices this year, and most of all, the discipline in capital spending, most energy analysts say the US’s shale patch is now financially stronger.

“Bankruptcies have been fewer and far apart in recent months, and the energy loan default rate has dropped to the lowest level since the oil market crashed in March and April last year,” a report by international energy research firm, Rystad Energy said.

The report noted that low interest rates have prompted many U.S. oil and gas firms to raise new debt, most of which goes to repaying existing liabilities, not to drilling more wells.

“The energy default rate has fallen below the double-digit percentage for the first time since April 2020. The default rate is also considerably down from the 20.3-percent peak in March,” New York-based, Fitch Ratings said in a note.

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