Brent, the benchmark for Nigeria’s crude oil, hovers around 10-month highs of $53 on Monday as producer cartel and other oil-rich nations fail to agree on whether to unleash more barrels onto a market under threat from the latest coronavirus-related restrictions.
Brent crude hit a ten-month high of $53.33 struck on Monday while West Texas Intermediate, the US marker, stood at $48.15.
On Monday, Oil ministers from Organisation Petroleum Exporting Countries (OPEC) and its allies failed to respond to a complex outlook for crude demand, with the reopening of economies in some parts of the world but renewed lockdowns in others.
Higher oil prices earlier on Monday reflected “expectations among traders that no more additional oil will flood the market amid the current weak demand,” said Bjornar Tonhaugen, head of oil markets at Rystad Energy.
“No recommendation likely means it will take a while before a consensus on what to do for Feb oil production,” Tonhaugen said in a note.
OPEC’s de facto leader Saudi Arabia and other producers in the cartel are at loggerheads with Russia, which has been part of an oil alliance with the group since 2016. Moscow has been keen to release more barrels into the market so as not to cede market share to rivals.
The demand outlook for the first half of this year is mixed and there are still many downside risks to juggle, OPEC Secretary-General Mohammad Barkindo said before the meeting.
The United Arab Emirates (UAE) too, traditionally a Gulf ally of Saudi Arabia’s, has also pushed to raise output in recent months as it increases its domestic production capacity.
Adding to tensions within the group, Iran on Monday seized a South Korean-flagged oil tanker that had loaded in Saudi Arabia as it sailed through the Strait of Hormuz, with Iranian state media accusing the vessel of polluting the Gulf.
Iran has repeatedly threatened to target oil flows through the strait in retaliation for foreign aggression against it.
Last month OPEC+ decided to raise production by 500,000 barrels a day from January.
The increase was less than the two million bpd rise initially agreed as part of a gradual easing of the cuts deal that lopped 9.7m bpd off the market at the height of the pandemic last year.
Although OPEC’s delegates have noted reasons to be hopeful, many have been wary because of a surge in new coronavirus cases and are seeking to hold fire on further boosts to production. The group’s research arm has also further downgraded its expectations for oil demand this year.
Prices ended 2020 around 20 per cent lower than where they started it, with demand still depressed by coronavirus restrictions around the world.
The global rollout of vaccines has driven positive sentiment and pushed prices back above $50 a barrel, but case numbers in countries such as the UK have accelerated sharply, prompting new government curbs.
There are signs that lockdowns in some countries are set to be extended, potentially curbing oil demand. Germany is poised to prolong stricter lockdown measures beyond Jan. 10, while Japan is considering another state of emergency for the Tokyo area.
“Infection rates are still high in western industrialised countries, meaning that lockdowns will have to be extended in many places,” said Barbara Lambrecht, an analyst at Commerzbank. “The buoyant start to the year on the oil market risks faltering.”
While the higher petrol price translates to higher revenue, it also means if the Federal Government’s pricing template is anything to go by, Nigerians may have to brace for an increase in the pump price of fuel in December.
This is going to add more financial burden to Nigerians who are already complaining of the high cost of petroleum products, which has negatively impacted the price of goods and services.