The price of Brent Crude, Nigeria’s spot oil benchmark, has consistently maintained a decline below $75 per barrel for weeks, since Thursday, May 4, 2023, due to worries in the United States over possible debt defaults as well as the uneven re-opening of China’s economy amidst weak manufacturing data.
This global price decline has continued to send a shocking wake to Nigeria as the country’s 2023 appropriation bill was anchored on a crude oil price benchmark of $75 per barrel.
This development therefore showed that Nigeria may not be enjoying the crude oil windfall that many oil producing countries have enjoyed for the better part years.
As of Monday, May 15, 2023, Brent was trading at $74.70 while Bonny Light was traded at $74.03 per barrel.
The West Texas Intermediate had slipped below $70 per barrel. The West Texas Intermediate (WTI) also declined to $70.59 per barrel.
IG analyst Tony Sycamore in a chat with Reuters said, “With the uneven re-opening in China and concerns that the U.S is facing a growth slowdown at a time when the X-date for the debt ceiling is rapidly approaching, topped off by a rally in the U.S dollar, market sentiment towards crude oil will remain tepid at best,”
“Sentiment in the oil market remains negative with an uncertain demand outlook and concerns over the US debt ceiling,” Warren Patterson, head of commodities strategy for ING Groep, told Bloomberg.
The banking sector tremors in the United States, which happens in recent weeks have also had a lot to do with oil prices.
Shareholders’ fear of a banking meltdown signaling broader meltdown, which has also translated into a fear of oil demand destruction and, consequently, a selloff among traders and investors.
This development will continue to hunt Nigeria even as it struggles with two consecutive months of decline in the its crude oil production.
Crude oil exports account for around 80% of Nigeria’s foreign exchange revenue, the country has suffered a huge revenue shortfall arising from lower crude oil production.
While the appropriation bill for 2023 was benchmarked on $75 per barrel and a daily oil production target of 1.69mbpd, the country’s output dropped by 38,102 barrels per day in March to 1,268,202 barrels per day and decline further to 998,602 bpd in April 2023.
Meanwhile OPEC’S global oil demand forecast for 2023 was held steady for a third month last week, with the cartel citing the potential Chinese growth to be offset by downside economic risks elsewhere such as the U.S. debt ceiling.
Petroleum Exporting Countries (OPEC) said in a monthly report that the global oil demand in 2023 will rise by 2.33 million barrels per day (bpd), or 2.3%, thereby unchanging its 2.32 million bpd forecast of last month.
OPEC said, “Minor upward adjustments were made due to the better-than-expected performance in China’s economy, while other regions are expected to see slight declines due to economic challenges that are likely to weigh on oil demand.”
It also said its April output fell by 191,000 bpd to 28.60 million bpd, with declines in Iraq and Nigeria. Iraq’s northern exports were halted while some of Nigeria’s exports were disrupted by a labour dispute.
The OPEC’s report kept its forecast that non-OPEC supply would rise by 1.4 million bpd in 2023 and flagged factors that could limit or curb supplies, such as investment levels and the war in Ukraine.
The oil cartel is therefore hopeful that China’s oil demand will rise by 800,000 bpd, up from the 760,000-bpd forecast in March, adding to a recovery after strict COVID-19 containment measures were scrapped.