Adedapo Adesanya
By Adedapo Adesanya
Crude prices continued to swim in the bearish territory on Friday, hitting a 5-month low as COVID-19 cases climb while more countries in Europe are imposing new lockdowns.
Renewed national lockdowns in France and Germany have shaken financial markets while the United States’ case count for COVID-19 remained at record levels and may continue to rise.
Business Post had reported that futures had reacted to the government response to the second wave of the pandemic as oil market participants remain concerned that the return of lockdowns in Europe will significantly weigh on economic recovery and fuel demand.
The situation pressured the price of the Brent crude on Friday by 19 cents or 0.56 per cent to $37.46 per barrel while the West Texas Intermediate (WTI) crude fell by 67 cents or 1.85 per cent to close at $35.50 per barrel.
Global coronavirus cases rose by a single-day record of half a million recently, prompting governments across Europe to impose mobility restrictions again to curb the spread.
The onus to restore balance in the oil market may now fall on the Organisation of the Petroleum Exporting Countries and its allies (OPEC+) as speculation show they may not maintain the production cut in 2021.
The group’s output reduction of about 7.7 million barrels per day currently may extend into next year amid lockdowns in Europe while Libya has resumed production.
Libya currently produces 680,000 barrels per day and expects production to rise to 1 million barrels a day in the coming weeks. This is an additional headache for OPEC+ which is scheduled to meet on November 30 and December 1 to set policy.
While the two leaders of the OPEC+ pact, Saudi Arabia and Russia reportedly want it, three of the biggest OPEC producers behind Saudi Arabia may not be on board with extending the current cuts into next year.
Iraq, the United Arab Emirates (UAE) and Kuwait are reportedly not particularly inclined to support a rollover of the cuts of 7.7 million barrels per day because such cuts are too deep for their economies and budget incomes to sustain.
These producers will want to stick to plans to add their output by 2 million barrels per day in January as part of their production agreement signed in April.
For Nigeria, earnings become threatened again as Brent, the country’s oil benchmark, has dropped below $38 per barrel. This means a majority of Nigeria’s foreign exchange earnings, about 90 per cent, which come from oil, will face an additional blow. It is, however, not clear yet if the country will support the extension or stick to the initial plan.
