The benchmark for Nigeria’s crude oil, Brent, inched higher on Monday, helped by the United Kingdom’s decision to grant regulatory approval to another coronavirus vaccine, just as the United States passed its stimulus bill into law.
On Monday, US West Texas Intermediate (WTI) crude settled up 11 percent to $48.23 a barrel, while Brent crude future settled 9 percent higher at $51.29. Crude has jumped 20 percent since November as pharmaceutical companies made rapid progress on readying anti-virus drugs.
“The pulse of oil markets remains wedged between the push-and-pull stemming from rising virus cases in the U.S. and Europe” and potential Covid-19 vaccines, said Ehsan Khoman, head of MENA research at MUFG Bank Ltd.
Markets have rallied sharply since late October as vaccines progressed to approval in numerous countries as Britain’s drug regulator announced on Monday it could clear another coronavirus vaccine produced by AstraZeneca Plc and the University of Oxford which would be ready for use as early as this week.
The oil market rallied even more on Monday after President Donald Trump signed the long-awaited bill containing $900 billion of virus relief that’s expected to boost energy demand in the world’s largest economy.
Trump had previously expressed his displeasure with the package that Congress approved last week.
Despite Monday’s gains, oil is finishing the year on a sombre note. Traders are weighing the short-term demand risk of more travel restrictions as a result of a new mutation in the coronavirus, against optimism over vaccine rollouts, which will eventually boost energy demand. There’s also evidence the resurgent pandemic is stalling the economic recovery in some parts of Asia.
“I see a very quiet market from now until the end of the year, but the direction for the next couple of days will be downward” due to the new virus strain, said Howie Lee, an economist at Oversea-Chinese Banking Corp. “Since it’s nearing the year-end, traders are just happy to close their books.”
President Trump, meanwhile, has raised geopolitical tensions in the Middle East, accusing Iran of being responsible for a rocket attack near the US embassy in Baghdad.
Iran’s oil minister Bijan Zanganeh said this month that Iran was planning to double its production in 2021, which will clash with OPEC+ efforts to gradually increase supply without flooding the market.
The current trend in the global oil market is expected to provide some level of stability to Nigeria’s already fragile economy with oil exports contributing about 90 percent of the country’s foreign exchange earnings.
While the higher crude price translates to higher revenue, it also means Nigerians may have to brace for an increase in the pump price of petrol in January, going by the Federal Government’s pricing template.
This is going to add more financial burden to Nigerians who are already complaining of the high cost of petroleum products, which has negatively impacted the price of goods and services.
Nigeria and other members of OPEC are meeting next week. However, there are indications of changing sentiment among its members on their previously-agreed cuts which are being watched closely.
Global onshore crude inventories in December are still well above 2019 and 2018 levels, market intelligence firm Kpler said, with the biggest onshore builds this year seen in China.
“The OPEC+ alliance plans to return 500,000 barrels a day of output to the market from January, but Algerian energy minister Abdelmadjid Attar’s suggestion that the alliance should remain cautious in response to the coronavirus mutation offers slight price support,” said Giovanni Staunovo, a commodities analyst at UBS.
