April 16, 2024

 

Oredola Adeola

Global oil prices have consistently lost momentum, as both Brent and West Texas Intermediate (WTI) crude oil fell as low as $72 per barrel and $68.78/b, respectively as at 1 pm on Thursday, May 4, 2023, due to economic fears in the U.S. and weak manufacturing data in China.

 

Brent price (Nigeria Bonny’s benchmark) declined from $87.33 in April 12 to $72.09 per barrel, on May 4 and WTI price declined from $83.26 per barrel to $68.78/b within the same period.

The latest decline in crude oil prices hitting below $80/b since April, 12, 2023, is described as a negative signals to Nigeria, as the country will be struggling to finance its 2023 budget which was predicated on the assumed price of $75 per barrel.

EnergyDay gathered that crude oil demand by China, which is the world’s largest oil importer, shrank in March and April, 2023, contrary to expectations of another expansion.

The oil prices decline is also linked to the third United States’ bank collapse, involving First Republic Bank, which fueled investors’ negative sentiment despite US Congress’s attempt to negotiate the debt ceiling.

Oil price report noted that the U.S. diesel demand is on the decline, suggesting a contraction in key industries such as freight transport, which has intensified fears of a recession in the world’s biggest economy.

In what looks like a puzzle in the oil markets, the market dynamics showed that there is a big disconnect between inventory data and oil prices.

It was expected that while inventories drop, oil prices are supposed to increase, but recent development showed that inventories and prices are falling at the same time.

However, large inventory draws over the past couple of weeks have failed to prevent significant price falls, while the OPEC+ production cuts and the war in Ukraine have also failed to impact the prices.

 

Recall that Saudi Arabia and other members of OPEC+ on April 2, 2023, cut one million barrels a day from the market. But Analysts have described that decision as a fiasco, since the cartel’s decision has failed to redirect the prices up for a long time.

 

THERE IS HOPE

Despite the market dynamics which is showing negative, Goldman Sachs said that the energy sector remains good for the long haul.

 

Goldman Sachs in a recent note to clients advised investors to buy energy and mining stocks, saying the two sectors are positioned to benefit from economic growth in China.

 

GS’ commodities strategist has forecast that Brent and WTI crude oil will climb 23% and trade near $100 and $95 per barrel over the next 12 trading months, an outlook that supports their upside view for profits in the energy sector.

 

The investment bank said, “Energy trades at a discounted valuation and remains our preferred cyclical overweight.

“We also recommend investors own mining stocks, which are levered to China growth through rising metals prices,” the investment bank said in the note.