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Nigerian crude oil and major oil contracts slid on Monday as fresh talks between the US and Iran would begin under President Donald Trump, fueled by hopes that a deal would reopen the Strait of Hormuz.
Brent crude futures tumbled 7 percent to $82 a barrel after Trump stated he consented to scrap a massive attack on Iran and consult his aides before a Middle East conflict, as its allies, including Saudi Arabia, begged him to hold talks for peace in the region instead. Nigerian crude oil last traded above $85 a barrel
Fundamental actions in the crude oil market highlighted that the supply panic subsides when US-Iran diplomatic progress is made, leading buyers to pull away from elevated spot premiums.
Supply fears still impact Middle Eastern shipping routes such as the Strait of Hormuz; refiners from Asia to Europe would frantically snap up non-Gulf light sweet crude. That temporarily raises demand levels, forcing Nigerian grades to remain above the $80 mark
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Crude Oil remains Nigeria’s major source of government income and dollar receipts despite recent efforts by the FG to diversify the economy. Every $1 reduction in crude oil price represents billions of dollars lost to Nigerian budget shortfall and reduced dollar income for the federation.
This dwindling inflow of foreign currency affects the central bank’s level of FX reserves, which in turn adds pressure to the Nigerian foreign exchange market
However, it spells good news for Nigerian citizens as the fall in crude feedstock prices leads to a reduction in the landside costs for crude, meaning cheaper refining costs for the Dangote Refinery, Cheaper landing costs for Nigerian fuel importers translating to cheaper fuel prices at the pumps, making transportation costs less prohibitive and bringing down the overall headline consumer inflation number.
US President Donald Trump pauses attack on Iran
US President Donald Trump said the administration would not authorize a planned military strike against Iran, after regional allies from Saudi Arabia, U.A.E., Qatar and Oman encouraged Washington to halt assaults and pursue a diplomatic settlement.
Market swings followed an intensification of exchanges, when the U.S. Warned of striking the Islamic Republic “very hard” to cease the conflict that is now a sixth month old. Supply disruptions exacerbated by the war sent fuel prices soaring and prompted inflation fears, disturbing investors.
Futures prices already discounted for a geopolitical risk premium factored in likely naval blockades and the possibility of supplying chokes. Reports of diplomatic efforts to provide a framework for guaranteeing transit through Hormuz nullify this immediate panic premium,” the note said.
Reopening of supply or assurance of transit through the Strait will permit blocked Persian Gulf production to international refiners – thereby boosting near-term physical supply availability in Europe and Asia immediately.
Market outlook benchmarked on Global Crude Oil Supply
More of those narrative underpinnings are likely to fall away with transit routes back on stream, and the official import allowances being raised, the same ones that led to prices spiraling upwards at the start of the year.
Expectations would see prices swing sharply from supply concerns to market surplus concerns, and should export volumes return to their previous levels, as non-OPEC production (US, Brazil, Guyana) continues to grow, and those voluntary OPEC+ cuts are reversed.
