Global oil prices surged close to the $95 per barrel mark on Monday as investors pay attention to the possibility of a widening supply deficit in the fourth quarter, following the decision by Saudi Arabia and Russia to extend supply cuts.
Brent crude futures experienced a substantial increase of 79 cents, reaching $94.72 a barrel by 16:57 Nigerian time. Simultaneously, U.S. West Texas Intermediate crude futures also saw a significant rise, gaining $1.24 to reach $92.01.
It is the highest in the last 10 months, through which prices have risen almost 30% since June.
“The price is buoyed by expectations of a widening supply deficit in the coming quarters as Saudi Arabia and Russia will extend oil production cuts to the end of the year and amid optimism surrounding the demand outlook in China, the world’s largest oil importer,” explained Fiona Cincotta, Senior Financial Markets Analyst at City Index, a trading services provider.
Why this matters
Rising crude oil prices have a mixed impact on Nigeria.
On the one hand, the government earns more revenue from oil exports. On the other hand, the cost of refined products, such as gasoline, is also expected to rise. This could either be passed on to consumers or the government, if it decides to restart fuel subsidies. The government claims subsidy payment has become too costly.
In August, President Bola Tinubu promised there would be no further increase in gasoline pump prices. The Nigerian National Petroleum Company (NNPC) Limited also said that it has no plans to hike pump prices, despite the rise in crude oil prices, landing cost, and fall in the value of the naira.
Under Tinubu, the price of petrol has risen from N189 to N617 in four months.
However, it is uncertain whether Nigeria can take advantage of the rise in crude oil prices, given its low daily production of 1.18 million barrels per day in August.
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This marks the third consecutive week of price increases for both Brent and WTI, propelling them to their highest levels since November. Additionally, they are poised for their most substantial quarterly gains since the first quarter of 2022, coinciding with Russia’s invasion of Ukraine.
Experts say oil prices are expected to cross the $100 per barrel threshold before the end of the year. In an interview with Bloomberg, Chevron’s Chief Executive, Mike Wirth, expressed the belief that oil could cross the $100 line.
Saudi Arabia and Russia recently announced an extension of their combined supply cuts, totalling 1.3 million barrels per day (bpd), until the year’s end. Analysts predict that these measures could push the market into a 2 million bpd deficit in the fourth quarter. A resulting reduction in inventories could potentially expose the market to further price spikes in 2024.
Saudi Arabia’s Energy Minister, Prince Abdulaziz bin Salman, defended OPEC+ cuts to oil market supply, emphasizing the need for light-handed regulation in international energy markets to curb volatility. He also cited ongoing uncertainties related to Chinese demand, European economic growth, and central bank actions to combat inflation.
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