Oil Price Rises Above Nigeria’s $57 Budget Benchmark
The international oil benchmark, Brent crude, rose on Wednesday, gaining a seventh straight day amid broad optimism as new coronavirus cases fell for a second day in China.
This is coming as concerns rose over supply after the United States’ move to cut more Venezuelan crude from the market.
Brent crude, against which Nigeria’s oil is priced, plummeted to its lowest level in more than a year on February 3, trading below the Federal Government’s benchmark for the 2020 budget, as the coronavirus outbreak hit fuel demand in China.
The 2020 budget, which was signed by President Muhammadu Buhari, in December, was based on oil production of 2.18 million barrels per day with an oil price benchmark of $57 per barrel.
Brent crude was up by $1.50 at $59.25 per barrel as of 7.48pm Nigerian time, compared to $54.39 per barrel as of 9.10pm on February 3.
China is still struggling to get manufacturing going again in the world’s second-largest economy, after imposing stringent city lockdowns and travel restrictions to contain the virus that has now killed more than 2,000 people, but investors remain optimistic that the economic fallout may be short-lived, according to Reuters.
S&P Global Ratings said it expected coronavirus to deliver a “short-term blow” to economic growth in China in the first quarter.
Official data showed that new cases in China fell for a second straight day, although the World Health Organisation had cautioned there was not enough data to know if the epidemic was being contained.
Brent has risen nearly 10 per cent since last week falling to its lowest this year so far, most recently supported by a US decision on Tuesday to blacklist a trading subsidiary of Russia’s Rosneft that President Donald Trump’s administration said provides a financial lifeline to Venezuela’s government.
The US slapped sanctions on Rosneft Trading SA, the Geneva-based unit.
The Swiss subsidiary “has been Venezuela’s primary conduit for brokering cargos, which find their way predominantly to refineries in India and China,” said the Chief Market Strategist at AxiCorp, Stephen Innes.
“Throttling this Asian supply channel will provide some support for oil prices,” he said.
Prices have also been supported by hopes that the Organisation of the Petroleum Exporting Countries and its allies will deepen supply cuts.
The grouping, known as OPEC+, has been withholding supply to support prices and meets next month to decide a response to the downturn in demand resulting from the coronavirus epidemic.
OPEC+ wants to “prevent the emergence of a large supply overhang caused by slumping demand amid the health crisis centered in China, the world’s biggest importer of crude oil,” Eurasia Group said in a note.
But in the US, which is not party to any supply cut agreements, crude oil production has been rising as shale output grows. Shale production in the U.S. is expected to rise to a record 9.2 million barrels a day next month, according to the Energy Information Administration.
