Crude prices plummeted to fresh seven-month lows as the escalating trade war tensions between the US and China hit the outlook for oil demand while a surprise build up in US oil stockpile added to supply glut concerns.
Brent crude, the international oil benchmark, tumbled as much as 5 per cent to $56 a barrel, the lowest level since January and taking down with it prospects for Nigeria’s finances.
Oil price are already down over 25 per cent from the highest peak of the year reached in April and now hovers dangerously below the benchmark price which Nigeria set for the 2019 budget.
Western Texas Intermediate, the US marker, dropped almost 6 per cent to $50.52 a barrel, a level last seen in mid-January.
The drop in crude prices has taken down the stocks of oil companies with it, with the share price of ExxonMobil, BP and Royal Dutch Shell all declining by more than 7 per cent in the past week.
Analysts say that the deepening tensions between the US and China, following the decision on Monday by Beijing to allow the renminbi to fall below 7 to the dollar after the US slapped a new set of tariffs on the Asian country, are damaging oil prices.
Mihir Kapadia, chief executive of Sun Global Investments, said that oil reaching $70 a barrel by 2020 “is becoming a distant dream as the trade dispute escalates and has become more unpredictable”.
The recent interest rate cuts by central banks, set off by the decision from the US Federal Reserve, have not helped to allay fears of a global economic slowdown.
Further factors pushing the oil price down include reports that China is purchasing oil from Iran despite US sanctions, making the market appear less tight than first thought.
The latest snapshot of US crude inventory released on Wednesday did little to alleviate the market’s supply glut fears.
The Energy Information Administration, the statistics arm of the US energy department, said oil stockpile rose by 2.4m barrels for the week to August 2, confounding expectations for a 3.1m barrel draw.
Traders have warned that oil’s latest slump — coming despite simmering tensions in the Middle East and Opec supply curbs — indicate, in part, a loss of faith among investors such as hedge funds in the sector.
A Bank of America Merrill Lynch report earlier this week said that China opting to buy Iran’s oil could send prices $20-30 lower a barrel, with US shale supplies still threatening to overwhelm demand.
Brent crude began the year in the doldrums at $53.80 a barrel before rallying to $75.60 a barrel in late April.
The market was, however, more optimistic about the macroeconomic situation in January compared to now, said Bjarne Schieldrop, chief analyst at SEB, in a note.
