By Jeph Ajobaju, Chief Copy Editor
Brent oil futures were down 1.06 per cent to $49.30 on Wednesday, dropping below the $50 mark per barrel. West Texas Intermediate futures lost over 1.5 per cent to trade at $46.23.
Brent is one of Nigeria’s premium crudes, and the lower price came at a time the country had anticipated selling 1.7 million barrels per day (mbpd), as oil is its main export earner that is expected to lift it out of recession.
Oil prices slashed in trading session in London largely due to a surge in United States crude oil stockpiles and travel restrictions to limit a new mutant strain of coronavirus. That piles on pressure on already weak demand.
Data from the American Petroleum Institute (API) showed a gain of 2.7 million barrels in US crude supply for the week ending December 18, larger than the 3.25 million forecast by energy experts and the previous week’s build of 1.973 million.
In a note to Nairametrics, Stephen Innes, Chief Global Market Strategist at Axi, spoke on recent fundamentals in the oil market:
“And rubbing salt in the oil market wounds today, oil prices lurched lower, after yet another inventory build that was very much bearish to a consensus to what was penciled in by analysts,” he said.
“Oil traded lower again overnight with worries over the new virus variant and restricted mobility in most of Europe as demand fear resurfaces travel restrictions. And to assume this could be an isolated UK event might be unwise.”
The Organisation of Petroleum Exporting Countries (OPEC) plans to ensure that production capacity meets demand but the current situation shows oil bears having a grip on the hydrocarbon market, at least for the near term until coronavirus caseloads get subdued.
OPEC working on weak demand
OPEC had in September predicted that, due to the pandemic, global oil demand will fall deeper in 2020 than previously thought and recovery slower than expected in 2021.
OPEC has cut its demand forecast for 2021, and sees consumption rising by 6.62 million bpd, which is 370,000 bpd less than expected in mid 2020.
It cut back on its global oil demand forecast, for each quarter to the end of 2021, by an average of 768,000 bpd. This is expected to lead to a collapse by an unprecedented 9.46 million bpd in 2020, averaging 90.23 million bpd.
OPEC also raised projections for production outside OPEC over the next five quarters, by an average of 394,000 bpd, mostly due to a stronger outlook for the US.
The combination of softer consumption forecasts and more robust non-OPEC supply numbers depresses the requirement for crude from the cartel.
This led to its downward review of estimated demand for its crude by 1.1 million bpd to 28.2 million bpd in 2021.
OPEC is producing far below this level because of its agreement to curb supply, and the revision indicates bloated global oil inventories will subside more slowly than previously envisaged.
