Cocoa futures prices are melting lower as the resurgence of COVID-19 around the world threatens global demand for chocolate (Cocoa substrate). 

At the last trading session, September Cocoa futures closed at $2,164.50.  

As a result of weakening demand globally for cocoa and its substrates coupled with the present cocoa glut, as supplies outweigh demand, the price of September cocoa futures dropped to $2,159 per 1000kg, nearing a one-year low, before stabilizing above its support levels.  

Globally chocolate is often classified as a luxury item, meaning, in times of high economic uncertainty like this, the consumption of such products will falter, as consumers focus more on necessity goods.  

The worsening wave of cases in major global economies strengthened concerns among cocoa traders. 

However, Nigeria’s leader remains optimistic recently that efforts made by fiscal stakeholders in that sector, seems to be bearing fruit, as Nigeria recorded a surge in revenue in Cocoa, year to year.  

President Muhammadu Buhari said Nigeria’s revenue from cocoa and sesame seeds has increased by $79.4 million and $153 million respectively in the past year. 

“Our efforts on growing non-oil exports have started to yield some results. For instance, in the past year, our revenue from cocoa and sesame seed increased by $79.4 million and $153 million,” he said. 

Nigeria plays a leading role in the cocoa industry, covering a 6.5% share of the global production of cocoa. 

Nigeria is also the fourth largest exporter of cocoa beans globally, behind Côte d’Ivoire, Ghana, and Indonesia, according to the National Export Promotion Council. Cocoa exports in Nigeria are projected to grow annually by 4% in the coming years. 

These export earnings from cocoa, if invested properly, could further help Nigeria reduce its reliance on crude oil, which makes up a large chunk of its export earnings (about 90% Est), and minimize the impact of oil price swings to its economy. 

Crude oil prices for lighter Nigerian grades have not experienced the rally its category is presently having, despite significant draws on stockpiles in Europe, as cheaper substitutes like U.S Shale continue to be more attractive to importers, according to a report released by Reuters.

Bonny light, according to oilprice.com, sold for $43.33, far below the price Nigeria sold its crude months ago, at a discounted rate to attract buyers. However, consistent Indian buying continued to buoy Nigerian differentials, especially for some medium grades.

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Quick fact: Brent crude is the leading global benchmark for Atlantic basin crude oils. The international benchmark is used to set the price of crude oil of about of two-thirds of the world’s traded crude oil, including Nigeria’s crude.
Africa’s largest producer of crude oil and gas, Nigeria, gets most of its oil from the Niger Delta area, and its relatively classified under two specification based on its lightness and gravity, the heavier grade with a specification of, 20–25 gravity. The lighter grade with a specification of 36 gravity and both Nigerian grade types are low in sulfur and paraffinic.

Examples of Nigerian grades include Bonny light, Brass River and Qua Iboe.

Recall that three months ago the price of Bonny Light, one of Nigeria’s crude grades, had dropped to about $12–$13 a barrel because the major market for Nigerian Crude, had experienced economic depression triggered by the COVID-19 pandemic.

READ MORE: Nigeria’s crude export could suffer because of ExxonMobil

Also, it went so bad that even with lower oil prices, long-haul buyers from Asia did not want Nigerian oil cargoes because of shipping costs to pay and no real need for the oil barrels since demand has plunged.

Crude oil prices plummeted on Friday morning as the resurgence of COVID-19 picked up globally, especially in the world’s largest economy and consumer of crude oil (United States), dampened the optimism for strong demand in energy goods.

Brent crude futures lost 0.70% to trade at $42.84 a barrel at 4.30 am Nigerian local time, and the West Texas Intermediate also dropped 0.8%, to trade at $40.31 a barrel.

Quick fact: Both International benchmarks for crude oil gained more than 2% yesterday, triggered by positive macros coming from the U.S Job report and falling U.S. crude inventories. For the week, Brent crude is up 4.3% and WTI is up 5.6%.

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Stephen Innes, Chief Global Market Strategist at AxiCorp, in a note to Nairametrics, explained in detail the lingering concerns about the world’s largest consumer of crude oil. He said:

“The demand concerns continue to linger amid a rise in gasoline stockpiles as the number of confirmed coronavirus cases in the US climbed to an all-time high of more than 50,000 on Thursday.

“And as significantly, the infection curve rose in 40 out of 50 states in a reversal that has mostly spared only the Northeast. Indeed, faltering re-opening of US States as Covid-19 cases rise remains the primary thorn in the oil bulls’ side.

READ MORE: Nigeria’s external reserve drop by $261 million in 15 days, oil firms to sell forex to CBN 

“But worrisome for oil prices are the densely populated southern US states that have been ravaged by the virus and are among the US’s most weighty consumers of gasoline.

“With the latest state government health advisory imploring Sun Belt citizens to restrict movements coupled with the re-imposition of localised lockdowns, there is a detectible level of uncertainty in the oil market heading into what is traditionally one of the busiest driving weekend of the year, the July 4th celebration weekend.”

However, some oil traders and investors remain optimistic that the price of crude will maintain its bullish momentum in the midterm, as long as certain parameters are kept in place.

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“The market has become increasingly confident that easing restrictions on travel and business would boost demand for crude oil, but the pandemic’s progress threatens to derail this recovery,” ANZ Research said in a note.

“The recovery in gasoline demand will plateau until the U.S. economy improves,” it concluded.