Brent Crude oil prices dropped slightly at Asia’s trading session.
Brent crude prices held most of it gains from the previous trading session after U.S. government data showed a fall in U.S Crude Stockpiles supporting the view that fuel demand is picking up despite the COVID-19 pandemic.
Brent crude was slightly down by 0.07% to trade at $45.40 a barrel by 04.32 GMT, after a gain of around 2% in the previous session.
Quick fact: Brent crude is the leading global benchmark for Atlantic basin crude oil. The international benchmark is used to set the price of crude oil of about two-thirds of the world’s traded crude oil including Nigeria’s crude.
However, Stephen Innes, Chief Global Market Strategist at AxiCorp in a note to Nairametrics, revealed vital macros, that could keep crude oil relatively stable in the coming days. He said;
“But even worries around stalled US fiscal talks are partly offset by the US administration’s conciliatory tone on China’s compliance with the ‘Phase One’ trade deal.
“The upcoming six-month assessment seems unlikely to prompt any significant fireworks. Also, investor’s optimism remains high on a vaccine cure that is no longer being viewed as a pie in the sky.
“Finally, the US dollar’s weakness helps Oil prices in general, but even more so in this environment, as the weaker US dollar reflects a global “risk-on” environment, not a flagging US economy. “
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Global COVID-19 cases now exceed 20 million, so in the absence of meaningful progress on a COVID-19 vaccine, traders are still looking over their shoulders to where new lockdowns might be necessary.
Will Nigeria be allowed to produce more oil at this OPEC meeting?
Nigeria is hopeful that OPEC+ will agree to an increase in production.
This week brings forward one of the most important meetings OPEC+ faces in her history. After rescuing the markets from low oil prices with tight supply, the time has come to balance the market. OPEC and its non-OPEC allies, in short, OPEC+, will meet through videoconference in an offer to arrive at an agreement over how to oversee supply to the market.
The current week’s supply choice comes when oil prices have bounced back to pre-pandemic levels. Experts comprehensively anticipate that OPEC+ should increase oil production from current levels, however, questions stay over how much precisely and which nations will be influenced.
Two quotes to review
First the Saudi Energy Minister’s quote – “So I urge you today not to take for granted the progress we have made as a group over the past year. Do not put at risk all that we have achieved for the sake of an instant, but illusory, benefit,”. Prince Abdulaziz bin Salman, the Saudi Energy minister highlighting why OPEC should still tread carefully in increasing output.
Secondly, the Russia Deputy Prime Minister quoted on the 14th of February, “the market is balanced”. Alexander Novak who also co-chairs the OPEC group will be clamouring for more output.
Nigeria’s economy is struggling with its low production quota. The quota is about 1.45 million barrels a day. Although reports show that Nigeria breached its quota by producing 130, 000 barrels more to 1.6 million barrels per day. Late last year, Nigeria applied to have its baseline figure to be reviewed based on disagreements over the classification of output from the country’s Agbami field. Although the request was denied, now Nigeria is hopeful that the group will agree to an increase in production.
Nigeria had shown signs of better discipline at the end of last year, and in recognition Timipre Sylva, the Nigerian Oil minister was sent to guide other African countries in improving their oil compliance levels.
OPEC and its allies are still withholding 7 million barrels a day from the market, which represents about 7% of global supply. Most Investment banks and trading houses believe prices will soar higher because of the tight supply situation. This assertion is supported by the U.S output freeze in Texas and Iranian talks on hold with the U.S.
Although some reports still claim that the market is not as tight as it seems and prices are only up because of how financial markets or funds have gone “long” on commodities. A report from Reuters shows that ‘there might be a disconnect emerging between the strong pricing in the paper oil futures market, and the somewhat more subdued pricing in the physical crude market, especially for east of Suez cargoes.
Interestingly, the narrative the market is showing is only on the production side and does not account for the loss of demand from refineries as some Texas refineries have had poor refining margins.
At the moment, there are too many variables influencing the oil markets. On Monday, traders were assessing tensions between the U.S and Saudi Arabia as the report on the death of Jamal Khashoggi might lead to sanctions on Saudi Arabia. Saudi Arabia might take this into context and pump more in the interim.
Will there be an increase in oil production?
Sources and various energy analysts believe the group will increase production by about 500,000-1 million barrels. Personally, I feel the figure will be close to 750,000 as Saudi Arabia might not roll over their 1 million cut promise to the market. Also, no one will want another March Madness as we witnessed last year so the best strategy is to appease all parties.
Additionally, in what we refer to as scratch-my-back diplomacy, the group will consider India’s request to reduce oil prices as the current prices are hurting economic recovery. Last month, India urged OPEC and allied oil producers to ease production as their economy battles higher gasoline prices.
Nigeria needs more production capacity. India and Asia need cheaper oil. Russia wants production as they believe the markets are balanced. Saudi Arabia does not want to undo the great work it has achieved since its last meeting. In a game of musical chairs, someone will eventually lose a seat. Hopefully, Nigeria will not lose her seat and get additional barrels.
Oil prices stay on course over successful rollout of COVID-19 vaccines
The British-based oil contract, Brent crude surged by 0.46%, to trade at $62.99 a barrel, up from four days of losses.
Crude oil prices recorded early gains at the third trading session of the week. Oil traders are riding, on high hopes on progress made by COVID-19 vaccine rollouts in the world’s largest economy.
At the time of drafting this report, U.S. West Texas Intermediate (WTI) crude futures gained 0.3%, to $59.93 a barrel, partly recovering from the week losses.
Also the British-based oil contract, Brent crude surged by 0.46%, to trade at $62.99 a barrel, up from four days of losses.
However, it’s fair to say the bulls were not yet in full control as recent price action suggested capped gains.
Some oil pundits anticipate energy demand recovery is on the right track partly to the successful rollouts of COVID-19 vaccines at emerged markets.
That being said, Stephen Innes, Chief Global Market Strategist at Axi in a note to Nairametrics spoke on the rising oil stockpiles at the world’s largest economy, keeping oil bulls far from holding their grip,
“U.S oil stockpiles rose last week and product inventories fell sharply in a cause and effect of the cold snap that forced refiners to shut down Texas operations.
“The unexpectedly large crude inventories build hit at a worrying time for oil bulls. This is particularly significant on the rising possibility that OPEC major oil producers could agree to ease production cuts at a critical meeting this week amid concerns that demand will likely outstrip supply as the global vaccine-led recovery gathers a head of steam,” Innes said.
What to expect: Oil traders are anxiously waiting for Thursday’s OPEC+ meeting. It appears to represent some overdue caution going into the OPEC+ meeting as market participants continue to draw straws and attempt to gauge the likely rise in production.
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