The international oil benchmark, Brent crude, rose slightly on Thursday on the back of improving trade relations between the United States and China as well as rising tensions in the Middle East.
Brent, against which Nigeria’s oil is priced, gained 30 cents to trade at $66.30 per barrel as of 5.40pm Nigeria’s time.
“We expect oil prices to remain above $60 per barrel, owing to the decision during the OPEC meeting to cut the supply of oil further by 500,000 barrels per day which would take effect from January 2020,” analysts at Lagos-based Financial Derivatives Company Limited said in its latest update.
According to them, oil production is expected to decline in the coming months as the agreement on deeper production cuts kick in.
The FDC analysts, led by Mr Bismarck Rewane, said, “It is unclear whether Nigeria would be included in the deeper cuts. If this happens, and Nigeria is forced to comply, the country’s oil output levels may fall towards 1.7 million bpd.
“Nigeria is more sensitive to production than price. A lower oil output would affect the actualisation of budgeted revenue projections as oil revenue accounts for 31.35 per cent of the total revenue projected.”
The US military carried out air strikes against Iran-backed Katib Hezbollah militia group over the weekend. Angry at the air strikes, protesters stormed the US Embassy in Baghdad on Wednesday, although they withdrew after the United States 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,” a consultancy, JBC Energy said.
“Nevertheless, heightened tensions in the region involving Iranian-backed forces may introduce a certain geopolitical risk,” they added.
Oil was also boosted by optimism that trade talks between the world’s two largest economies would support demand.
US President Donald Trump said on Tuesday that the US-China Phase 1 trade deal would be signed on January15 at the White House.
“We may need to see that economic optimism turn into better data before we see more substantial gains,” analysts at OANDA said.
OPEC and its partners, including Russia, agreed to cut output by a further 500,000 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.
A fall in the US crude inventories last week also supported prices. The US crude stocks fell 7.8 million barrels in the week ended December 27, compared with analysts’ expectations for a decrease of 3.2 million barrels, data from the American Petroleum Institute showed on Tuesday.
Official data from the Energy Information Administration is due on Friday having been delayed for two days by the New Year’s holiday.