• Tuesday, June 18, 2024
businessday logo


Price of Nigeria grade oil up $86 on Middle East tensions

Volatility in Middle East Gulfs may suck out 20% of global oil supply

Nigeria’s oil futures, Brass River and Qua Iboe, recorded gains on Monday amid rising tensions in the Middle East following the news that a helicopter with an Iranian president on board had crashed, killing him and other officials.

On Monday, Brass River, a sweet medium light crude, gained 0.70 percent to trade at $86.60 per barrel, while the Qua Iboe, a light sweet crude grade, also gained 0.70 percent to trade at $86.60 per barrel.

ExxonMobil produces Qua Iboe from numerous offshore fields and exports through the Qua Iboe Terminal. The crude is known for its high quality and low sulfur content, making it a popular choice for refiners.

Read also: With market shrinking, Nigeria targets Europe with new ‘Nembe’ grade of crude

Experts say the death of the Iranian president is likely to cause volatility in oil markets as investors gauge the potential impact on the country’s oil production and exports.

“From here, we expect overall market fundamentals to improve and see similar inventory draws and price action as observed last summer, with Brent oil moving $10 higher from current levels by September,” JPMorgan analysts wrote in a note late Sunday.

Iranian President Ebrahim Raisi, a hardliner and potential successor to Supreme Leader Ayatollah Ali Khamenei, died in a helicopter crash near the Azerbaijan border, according to officials and state media.

Despite Raisi’s death, Bloomberg reports that analysts expect Iran’s oil policy to remain unchanged as Khamenei retains ultimate authority over state affairs.

Giovanni Staunovo, a commodity analyst at UBS Group AG, stated that “oil policies are likely to be unaffected,” a view shared by Alan Gelder, vice president of refining, chemicals & oil markets at consultancy Wood Mackenzie Ltd.

Ayatollah Ali Khamenei, Iran’s Supreme Leader, has already made a statement seeking to reassure the population there would be no disruptions to ongoing state affairs.

According to early reports, the crash was caused by bad weather, which made the search and rescue operation difficult.

In other news that could cause extra volatility in oil prices, Mohammed Bin Salam, Saudi Arabia’s Crown Prince postponed a visit to Japan because of his father’s health.

The announcement came hours after the Royal Court in Riyadh said Prince Mohammed’s 88-year-old father had a lung infection and was undergoing treatment involving antibiotics.

Prince Mohammed had been due to meet Prime Minister Fumio Kishida and the Japanese emperor on his trip from Monday, which would have been his first to Japan since 2019.

But Saudi Arabia’s government informed Tokyo late on Sunday that the visit had been postponed due to King Salman’s health, Yoshimasa Hayashi told reporters.

“The visit of His Royal Highness Crown Prince Mohammed to Japan will be re-coordinated between the two countries,” Hayashi said.

King Salman has been on the throne since 2015, though his 38-year-old son was named crown prince in 2017 and acts as day-to-day ruler.

For years, Saudi Arabia, the world’s biggest crude exporter, has sought to quell speculation over King Salman’s health, which is rarely discussed.

But the Royal Court disclosed in April that he had been admitted to King Faisal Specialist Hospital for “routine examinations”. He left the hospital later the same day.

Before that, his most recent hospitalisation had been in May 2022, when he went in for a colonoscopy and stayed for just over a week.

According to some analysts, taken together with the news of Iran’s president, this could result in a spike of uncertainty.

In Europe, another Russian energy facility was hit. The Slavyansk oil refinery, located in the Krasnodar region, was damaged after a weekend drone attack, state-run TASS reported on Monday, citing a company security official.

Russia has reported a rise in Ukrainian attacks on its territory since its forces opened a new front in northeastern Ukraine’s Kharkiv region earlier this month.

“From here, we expect overall market fundamentals to improve and see similar inventory draws and price action as observed last summer, with Brent oil moving $10 higher from current levels by September,” JPMorgan analysts wrote in a note late Sunday.

The Organisation of the Petroleum Exporting Countries (OPEC) and allies, known as OPEC+, are scheduled to meet on June 1.

“The market also appears increasingly numb to developments on the geopolitical front, likely due to the large amount of spare capacity OPEC is sitting on,” said Warren Patterson, head of commodities strategy at ING.

Implication for Nigeria

These developments in the oil market could have significant implications for Nigeria, whose economy relies heavily on oil exports.

“A decline in demand could translate to lower oil prices and consequently, reduced government revenue. This could put pressure on the country’s budget and potentially lead to cuts in public services and infrastructure spending,” Aisha Mohammed, an energy analyst at the Lagos-based Centre for Development Studies said.

In the 2024 budget, the government has planned with the anticipation that oil will sell above $78 per barrel and Nigeria will produce at least 1.78 million barrels per day (bpd).

Other experts said rising oil prices also raise fresh concerns about the sustainability of Nigeria’s ‘secret’ bill for fuel subsidies bill.