There is fresh hope of an increase in oil price ahead of next week’s Organization of the Petroleum Exporting Countries, OPEC+ Joint Ministerial Monitoring Committee meeting amidst hopes of member countries extending production cuts into August and beyond.
This renewed hope is hinged on a report from the International Energy Agency (IEA) that showed a 108% compliance rate from member countries against 89% a month earlier.
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A surge in crude oil prices is a source of good news to Nigeria as this will boost government revenue and improve liquidity in the foreign exchange market. Recall that oil exports contribute about 90% of Nigeria’s foreign exchange earnings, as such if there is any surge, it will provide some level of stability to the country’s already fragile economy.
Saudi Arabia is reported to have cut its crude oil production by 1 million barrels per day which is more than mandated, this has helped in reducing OPEC crude oil production to its lowest point in nearly 30 years, thus sending crude oil price soaring to about $42 support levels, and dampening growing concerns of COVID-19 resurgence.
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According to the report, crude oil production of OPEC+ members for June reduced by almost 2 million barrels, compared to May showing 33.4 million barrels per day. This agreement by major oil producers has helped in limiting oil production.
“On the supply side, global oil production fell sharply in June to stand 13.7 million barrels per day below the April level. The compliance rate with the OPEC+ supply agreement was 108%.”
This solid performance by the OPEC+ group has been supplemented by substantial market-driven cuts, mainly in the United States,” the report stated.
This compliance level has led to optimism that an increase in the price of crude could be looming.
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According to Edward Moya, senior market analyst at Oanda Corporation, a leading investment company disclosed that the boost is in part due to the upbeat COVID-19 vaccine and treatment news and a softer dollar, but U.S. benchmark prices remain anchored below the $41 level and will likely struggle for any major moves until after next week’s OPEC+ Joint Ministerial Monitoring Committee meeting.
“The demand outlook risks warrant a discussion for OPEC+ to consider extending production cuts into August” he stated
In the Report, new data confirmed that the worst of the demand destruction was in the first half of the year when demand fell by 10.75 million barrels per day mbpd. For the second half, the report expects an improvement in the level of decline to 5.1 mbpd.
“We estimate that global oil demand this year will average 92.1 mbpd, down by 7.9 mbpd versus 2019, a slightly smaller decline than forecast in the last Report. This is mainly because the decline in 2Q20 was less severe than expected. For 2021, we have made some minor adjustments to our outlook and demand will be 97.4 mbpd; but due to the improved outlook for 2020 the recovery, next year is lower at 5.3 mbpd. Average demand in 2021 will be 2.6 mbpd below the 2019 level with jet/kerosene accounting for three-quarters of the deficit” the report added.
