Oil price starts the dip phenomena

Brent, the international crude oil benchmark, fell to a seven-month low last week as demand and supply sided risks intensified following a more acute face-off between USA and China, while increased Shale

production threatened a glut. The Saudis want to nip the crisis in the bud.

The sudden drop in the price of the commodity is already sending a predawn chill down the spine of Nigeria’s policy makers because the budget had already been benchmarked at $60 per barrel.

Brent crude, as which Nigeria’s oil is priced, fall by $2.60 to $56.34 as of 8:10 pm last week Wednesday, but it moved higher to hit $58.71 as at 7:45 pm on Friday.

The big question for Nigeria should the OPEC+ coalition vote for muting supply further would concern a halt to Nigeria steady output rise since 2016 with implications for the country’s ambitious budget in the face of revenue challenges.

“Price at a decent level remains important for us. Even if we are producing so much and the price is below our budget benchmark, we will be in a bad position,” said Gbolahan Ologunro, an analyst at Lagos-based CSL Stockbrokers.

“To that extent, I think a compromise would be in the entire interest of the market and affect Nigeria positively.”

A rise in price, if it is further cut, would help support government earning but production is stated in the budget at 2.3 million bpd is very unlikely.

Nigeria no longer enjoys exemption from cuts since supply-disrupting activities of Nigeria Delta Military have been quelled but production has remained above OPEC’S quota of 1.685 million bpd. June data show Nigeria’s output at 1.956 million bpd.

“If there would be any further cut, it would likely be backed by sanctions to ensure compliance,” Ologunro said.

The kingdom said it would take all necessary actions to stem the tide and prop up prices of oil that U.A.E. Energy Minister Suhail Al-mazrouei said was inflicted by “temporary over-reaction, which is driven by speculation.” Front-month contract for Brent rose 2.8% on Thursday, snapping a 3-day losing streak.

The positive effect nonetheless, OPEC may be set for further output cut to create artificial gaps that would support prices of Brent hovering around $57, some 23 percent lower than April’s high and $3 short of Nigeria’s budget mark, mid-day Friday.

In Abu Dhabi next month, the world’s biggest oil cartel would have to agree with allies on the big move to help OPEC regain reins on oil price.