Global benchmark Brent crude tumbled below $100 a barrel yesterday.
It was the result of a depressed demand caused by concerns over COVID-19 resurgence, especially in China and fears of a global economic slowdown.
Also, a stronger United States (U.S.) dollar arising from a Federal Reserve raise in interest rate done to tame the rising inflation which has snowballed into a global phenomenon, was among elements contributing to the lull in crude oil demand.
The West Texas Intermediate (WTI) dropped by as much as 7. 09 per cent to trade at less than $97 per barrel with Brent crude losing over seven per cent to settle at $99.63, trading below $100 as Wall Street traded lower and the dollar rose, making commodities priced in the currency more expensive.
Dwindling liquidity has left prices vulnerable to sharper moves of late, with Brent futures last week recording their third-largest slump ever in dollar terms.
According to Bloomberg, bearish sentiment has filtered through commodities as rising virus cases in China and looming US inflation data stoke concerns about demand, outweighing fundamental market tightness.
Despite growing fears of recession across some economies due to the energy crisis, several energy administrations admit that there might not be any reprieve as supply challenges are set to get worse.
The dip in crude prices is expected to hurt Nigeria more as it would reduce the amount of remittance from the Nigerian National Petroleum Company (NNPC) Ltd to the Federation Account that is usually disbursed to the three tiers of government under the Federation Accounts Allocation Committee.
Even with crude oil prices above $100, Nigeria seems not to have benefitted from the price rise as the NNPC failed to carry out its statutory obligations to the federation for the fifth month in May 2022, with the firm now recording a N704 billion deficit for the year thus far.
NNPC, in its latest monthly presentation to the FAAC, said it deducted another N327.07 billion as a shortfall in the month under review.
With a projected N1.473 trillion payment to the federation for the entire year and a monthly remittance of N122.767 billion, the implication is that the federal, state and local governments may continue to have cash shortages for a while since the payments constitute a major revenue source. This could get worse with falling price of Brent crude.
Last month, the NNPC said it would deduct a record N874.5 billion when the FAAC met this June.
But the latest data showed that the entire revenue of the firm for the month was not even enough to net off such a huge sum. Part of the amount has now been deferred till next month.
IEA Executive Director, Fatih Birol, said countries might not have seen the worst of a global energy crunch while OPEC’s first look at 2023 showed no relief from oil market tightness.
Crude has tumbled since early June on escalating fears the US may be heading for a recession as central banks hike rates aggressively to combat inflation.
President Joe Biden is scheduled to visit Saudi Arabia this week during a tour to the Middle East as he seeks to halt the high energy prices that are negatively impacting the global economy.
The US believes that the Organisation of Petroleum Exporting Countries (OPEC) has room to raise production should Biden’s upcoming visit to the region yield any agreements. France’s President will meet with the leader of the UAE next week to discuss oil supplies.
The oil market has been under pressure since this year, mostly due to the Russia-Ukraine war which has affected trade flows from that region.
Oil prices had surged since Russia invaded Ukraine, raising concerns about global shortages given the nation’s role as a key commodities supplier, especially to Europe.
High commodity prices have been a major contributor to surging inflation, which is at the highest in 40 years.
OPEC is predicting that conditions in the oil market will remain tight into the coming year, with demand rising faster than supply, according to a report from the cartel’s research department released in Vienna yesterday.
It said in its initial report on the oil market for 2023 that growth in demand would exceed growth in supply by a million barrels.
At the end of July, OPEC+, which includes non-OPEC producers, significantly Russia, announced an increase in output by 648,000 barrels per day.
Following a rapid rise in oil prices in response to the Russian invasion of Ukraine, OPEC+ came under pressure to increase output.
Analysts, however, believe that certain members of the cartel are not meeting the targets set.
According to OPEC estimates, global demand for crude will rise by 2.7 million barrels per day, supported by economic growth in emerging markets.