Price of Brent the benchmark for Nigeria crude oil rose in the early days of 2020, buoyed by signs of improving trade relations between the United States and China, which eased demand concerns and rising tensions in the Middle East.
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Brent crude futures rose 25 per cent to $66.25 a barrel by 5 pm Nigeria time, while US West Texas Intermediate (WTI) crude was up 13 cents at $61.19 per barrel.
Oil was also boosted by optimism that trade talks between the world’s two largest economies will support demand.
US President Donald Trump said on Tuesday the US-China Phase 1 trade deal would be signed on January 15 at the White House.
“We may need to see that economic optimism turn into better data before we see more substantial gains,” analysts at New York-based OANDA said.
The two world superpowers account for about 34 per cent of the global crude oil. The commodity also account for 2/3 of Nigeria revenue and nearly all of the foreign exchange earnings.
Persistent trade spat between the US and China and global economic weakness has forced global oil agencies to roll back assumptions for demand growth for last year and this year.
Oil prices went on a downhill in June last year with investors becoming increasingly concerned about slowing demand. Appetite for oil is at risk of a further slump if the US and China fail to resolve trade differences in 2020, which will cause the global economy to weaken even more.
Also, US forces targeted the Kataib Hezbollah militia in retaliation for attacks on bases in Iraq that are used by the US military over the weekend.
The Americans have fought for years alongside Iraqi government forces in their confrontation with the Islamic State (IS) group
Angry at the airstrikes, protesters stormed the US Embassy in Baghdad on Wednesday, although they withdrew after the US deployed extra troops.
“We do not see a threat to Iraq’s crude supply at the moment, other than a small wind down over the first few months of 2020 in line with its OPEC cut agreements,” consultancy JBC Energy said.
January also marks the scheduled start of deeper output cuts by the Organisation of Petroleum Exporting Countries (OPEC) and its partners, including Russia.
The global oil cartel agreed to cut output by a further 500,000 barrels per day (bpd) from January 1, on top of their previous cut of 1.2 million bpd.
The cuts come as Russia reported record-high 2019 oil and gas condensate production of 11.25 million bpd, beating the previous record of 11.16 million bpd set a year earlier, Energy Ministry data showed on Thursday.
JBC Energy noted that “Nevertheless, heightened tensions in the region involving Iranian-backed forces may introduce a certain geopolitical risk.”
A fall in US crude inventories last week also supported prices. U.S. crude stocks fell 7.8 million barrels in the week ended December 27, 2019, compared with analysts’ expectations for a decrease of 3.2 million barrels, data from the American Petroleum Institute (API) showed on Tuesday, December 31, 2019.
Official data from the Energy Information Administration (EIA) is due on Friday having been delayed by two days by the New Year’s holiday.
In 2020, Brent is forecast to average $63.07 a barrel, up from December’s 2019 estimate of $62.50, while WTI is forecast to average $57.70 per barrel, up from December’s estimate of $57.30, a Reuters’ poll shows.
