By Udeme Akpan
The price of Nigeria’s Bonny Light, has surged further from the $33.77, recorded yesterday, to $34.11 per barrel in the international market.
This indicates an excess revenue of $9.11 per barrel, as the 2020 budget is currently benchmarked on $25 and 1.9 million barrel oil output.
However, the market is currently fuelled by some factors, including the following:
- Generally, the market is driven by the gradual relaxation of lockdown around the world, which encourages increased movement of goods and persons from one place another, demanding the use of petroleum products.
- The gradual restreaming of some economies, especially China, culminated in the purchase of commercial oil, which constitutes a major factor fuelling the market. For instance, on May 20, 2020, at least three tankers, loaded with crude, were seen heading toward China.
- The beginning of commercial refining in many nations, including United States and China, have called for improved utilisation of oil, leading to the disappearance of ‘unsold stocks’ in many markets.
- The action of China, a big developed economy, accounting for about one third of the global oil demand growth, gives impression that the era of very low price is over.
- The positive market situation is partly fuelled by some reports, including the latest report of the International Energy Agency, IEA, which stated: “Mobility still remains limited for many citizens, but businesses are starting to reopen gradually and people are returning to work, which will provide a boost to oil demand, albeit a modest one at first. Taking into account these developments as well as new mobility data from advanced economies that was stronger than in our previous forecast, we have raised our 2Q20 demand estimate.”
- The market has recorded substantial oil cut in the past few weeks because of the action of non -OPEC members. As the IEA report puts it, “We are seeing massive cuts in output from countries outside the OPEC+ agreement and faster than expected. In June, that drop could reach four million barrels per day, mb/d, with perhaps more to come.”
- Nations involved in OPEC accord have also taken substantial oil, out of the market. In May 2020 alone, it is expected that 12 m/bd would be cut from the market.
- The action of OPEC members, driven by massive speculation, gives impression that OPEC members, especially Saudi Arabia, United Arab Emirate and Kuwait, which have promised to cut, are committed toward achieving stability.
- The current oil diplomacy of OPEC to mobilise not only its members, but also non-member producing and consuming countries, constitutes a major factor, leading to the current market situation.
- Lastly, the ongoing researches and studies, targeted at developing vaccines to tame the pandemic, further raise hope that much progress has been made against the pandemic.
However, it should be noted that this is a ‘fragile market recovery’, because of the prevalence of some uncertainties, including the willingness or unwillingness of OPEC and non – OPEC members to sustain their commitments not only for a short term, but also in medium and long term.
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