The global oil benchmark, Brent crude, dropped sharply at the weekend and posted a loss on a faster-than-expected recovery in Saudi output, while investors also worried about global crude demand amid slowing Chinese economic growth.
Brent, against which Nigeria’s crude oil is price fell by 83 cents or 1.3 per cent, to settle at $61.91 a barrel, after dropping to a session low of $60.76 a barrel, this during a volatile session
U.S. West Texas Intermediate (WTI) crude CLc1 futures fell 50 cents, or 0.9%, to settle at $55.91 a barrel. It hit a session low of $54.75 a barrel.
Brent fell 3.7% for last week, its biggest weekly loss since early August. WTI lost 3.6%, its steepest loss since mid-July.
The 2019 budget, which was signed by President Muhammadu Buhari in May, was based on oil production of 2.3 million bpd (including condensates) with an oil benchmark price of $60 per barrel.
In October 2018, Brent crude hit a record high of $86.74 per barrel, a development that spurred the Federal Executive Council to peg the price of crude oil for the budget at $60 per barrel, up from $50.5 for 2018 budget.
But Brent plummeted in November, trading below the $60 per barrel mark, with some experts saying that the government would need to review the oil price benchmark downwards.
The oil price, however, hit $75 per barrel in April for the first time in 2019.
The 2019 outlook for West Texas Intermediate crude futures CLc1 was cut to the lowest since January 2018, at $57.90 per barrel, below August price of $59.29 forecast. WTI has averaged $57.13 this year.
However, after an event that included attacks on two separate Aramco oil facilities in Saudi Arabia earlier this month, oil prices saw an immediate spike. While prices have softened substantially since the attacks, the price of crude is still higher than before the attacks. The market’s immediate and strong reaction to a possible decrease in supply highlights the fragile nature evident in the oil markets and pricing.
The twists and turns of the US-China trade war and Britain’s torturous departure from the EU have consumed asset managers in recent years as they fretted over the possible impact on their portfolios.
But investors this month were jolted by an unexpected threat in the form of volatile oil prices after Saudi Arabia’s oil processing facilities were damaged by drone and missile strikes, knocking out around half of Saudi oil production.
A 20 percent surge in the price of Brent crude ensued, the largest intraday percentage rise since Saddam Hussein invaded Kuwait in 1990.
Also, Crude futures fell along with other higher-risk assets after the news, the U.S. government is considering the possibility of delisting Chinese companies from U.S. exchanges, a source briefed on the matter said on Friday. The move would be a radical escalation of trade tensions between the U.S. and China.
Earlier in the session, futures fell after Iranian President Hassan Rouhani said the United States offered to remove all sanctions on Iran in exchange for talks. However, U.S. President Donald Trump then said he had refused the request by Tehran.
“We’ve really been following headline to headline,” said Phil Flynn, an analyst with Price Futures Group in Chicago.
Also weighing on prices, a Wall Street Journal report citing unnamed sources said Saudi Arabia had agreed on a partial ceasefire in Yemen, said analysts in the Reuters Global Oil Forum.
“Saudi Arabia has occupied center stage in prompting a major an upswing in oil price volatility through most of this month both on a daily and weekly basis,” Jim Ritterbusch, of Ritterbusch and Associates, said in a note.
Prices later fell after Saudi Arabia, which supplies more than a tenth of global crude, said it had restored half of the lost production and would fully restore output by the end of September. Yet investors remain shaken by the heightened risks signaled by the attacks.
Investors are jittery about any further strikes against Saudi oil facilities or retaliation by the US against Iran, which the superpower blames for the incursion. Such an escalation would further disrupt oil supply and cause prices to spike, increasing the risk of a global recession.
Brent is just above its level before attacks on Saudi facilities on Sept. 14, which initially halved the kingdom’s production.
Sources told Reuters last week that Saudi Arabia had restored capacity to 11.3 million barrels per day. Saudi Aramco has yet to confirm it is fully back online.
The International Energy Agency (IEA) said it might cut its estimates for global oil demand for 2019 and 2020 should the global economy weaken further.
In China, the world’s second-largest economy and biggest importer of crude oil, industrial companies reported a contraction in profits in August.
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