For the first time since 2014, global oil price hit an unprecedented high of $71 as US inventories also declined amid on-going supply cutbacks by Organisation of the Petroleum Exporting Countries (OPEC) and Non OPEC members led by Russia.
Brent crude futures, the international benchmark for oil prices, hit a session high of $71.05 per barrel yesterday the highest since early December 2014.
U.S. West Texas Intermediate (WTI) crude futures climbed to $66.35 per barrel, also the highest level since early December 2014, before dipping to $66.26. That was still up 1 per cent from the last settlement. Both crude benchmarks have risen by almost 60 per cent since the middle of last year.
“The price will continue to be volatile, what we have now is a combination of some fundamentals and political factors, some of the oil producing countries are trying to increase their inventories which have previously gone down. Also, most of the leading economics countries and regions are witnessing economic growth, so we have a demand that’s driving price as long as global economies are doing well,” said Adeola Adenikiju, Director, Centre for Petroleum and Energy, University of Ibadan.
Adenikiju added, “The increase in the oil sector won’t be sustainable in the long run, for example, technology has begun to compete with demand for oil in the transportation sector which is one of the highest consumers of crude oil.”
Traders said oil prices remain supported by supply restrictions led by the OPEC and Russia, the world’s biggest oil producer, which started last year and expected to last all through 2018.
“Both OPEC and non-OPEC members stand to benefit from the continuous cooperation to rebalance the market by cutting crude oil supply. In essence, I see them extending the agreements beyond 2018, though some of the terms of the agreement may be renegotiated,” said Emmanuel Afimia, Energy analyst, Afimia Consulting Services.
On Monday, OPEC and Non-OPEC Joint Ministerial Monitoring Committee (JMMC) announced that the two groups have achieved a record-breaking conformity level of 129 per cent with their voluntary crude oil production adjustment. The two groups said monthly average conformity level for the first year of the declaration of cooperation was 107 per cent, based on the report of the Joint Technical Committee (JTC) for the year end.
“Before now, we have not had this sort of alliance, so the alliance is key, most especially for Russia who supplies the rest of Europe. Also traders are expecting the market to be more bullish, but it’s for a short term, on a long term we will see a general balancing, “said Adeoluwa Emeje, Energy analyst.
Speaking on the direct implication for Nigeria, Adenikinju said, “It will improve our macro-economic indicators, help us fund our budget and also improve our short term goals. It’s also a sign we need to be proactive in diversifying the economy, as the trend now won’t last forever.
Adenikinju added, “Beyond that we need to monitor the activities of NNPC to ensure Nigeria takes full advantage of the current situation, a situation where NNPC is making loss whereas other comparative oil companies are making profit is due to all sort of interference, so once the PIGB is fully implemented it going to ensure we get the best from our oil.”
“NNPC is currently faced with lot of duplication of duties, Nigeria has concentrated the commercial, regulatory, legal and institutional frame work of oil on just one company, that’s its leadership appointees are also politically motivated,” Adenikinju concluded.
Despite the success of OPEC in cutting production, U.S production continues to surge as latest monthly report from International Energy Agency (IEA) showed the U.S is well placed to overtake the likes of Saudi Arabia as the world’s leading oil producer in 2018.
U.S. crude inventories fell 1.1 million barrels to 411.58 million barrels, the Energy Information Administration (EIA) said on Wednesday. That is the lowest seasonal level since 2015 and below the five-year average of about 420 million barrels.
Latest data from OPEC showed Nigeria oil production recorded a 4 per cent increase in production from 1.78 million per day (mpd) to 1.86 mpd.