Crude oil prices continued in the upward swing and hit their highest levels since in three years. The current upward swing is being supported by three main factors which are the unrest in Iran that has raised concerns about supply risks, cold weather in the United States which is boosting demand and OPEC-led output cuts.
This is good as well as bad news for Nigerians It is good news for Nigeria will be able to earn more dollars to finance the 2018 budget and possibly cut down on external borrowing. It is bad news in that the cost of fuel importation will rise and domestic pump price of fuel will increase as marketers are already agitating for an increase. Nigerians no doubt will pay higher price for petrol in 2018 going by the fact that PPPRA will review pricing template and landing cost.
Meanwhile six days of anti-government protests in Iran OPEC’s third-largest producer have added a geopolitical risk premium to oil prices, although Iran’s production and exports have not been affected yet. Brent crude price, the international benchmark traded as high as $68.27 earlier in the session. U.S. crude rose 15 cents to $61.78 and also touched the highest since May 2015. “There is enough support for prices with the cold in the U.S. and the geopolitical factor,” said Olivier Jakob, oil analyst at Petromatrix.
Freezing weather in the United States has spurred short-term demand, especially for heating oil. Aside from the spike in May 2015, oil is trading at its highest since December 2014 – the month after a decision by the Organisation of the Petroleum Exporting Countries to stop cutting output to support prices, a move that deepened a price collapse. Analysts at JBC Energy said the price reaction to the Iranian unrest was overdone, while Swiss bank Julius Baer said prices projected “an overly rosy picture” that left the market at risk of profit-taking.
OPEC, supported by Russia and other non-members, began to hammer out a deal to cut supplies again in 2016, aiming to lift prices by removing a glut built up in the previous two years.
Their cuts started a year ago and compliance has been high, aided by involuntary output declines in Venezuela, whose economy is collapsing, plus unrest in Nigeria and Libya. Producers have decided to extend the deal until the end of 2018. OPEC’s cuts are helping reduce global inventories. In the United States, crude stocks fell by 5 million barrels in the latest week, the American Petroleum Institute said on Wednesday before the government’s supply report later on Thursday.
Byron Wien of Blackstone listed the prospect of U.S. crude topping $80 as one of 10 potential shockers for investors in 2018 in his annual list of surprises. Balancing the trend towards a tighter market is higher production in the United States, where the OPEC-led effort to push prices up is spurring more shale oil output.
