Oil dropped again yesterday, with Brent, Nigeria’s benchmark, sliding to $84.35 a barrel at about 5.50pm as the dollar’s surge and mounting recessionary concerns threatened global demand.
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If the trend continues, it would effectively mean that Nigeria may have lost out in the oil windfall which many producing countries have enjoyed for the better part of 2022.
With declining production, which was roughly 972,000 barrels in August, Nigeria has been unable to take advantage of the global price rise which for months hovered around $100 to a barrel.
The country which has led the Organisation of Petroleum Exporting Countries (OPEC)’s underperformance for months blames oil theft and underinvestment in the upstream oil and gas sector for its woes.
But on Monday, the global oil benchmark hit the lowest intraday level since January as a Bloomberg gauge of the US currency rallied to an all-time high following a similar trend which saw crude fall almost 6 per cent last week for a fourth straight weekly drop, the longest losing run this year.
The commodity is on track for a substantial quarterly slump as leading central banks including the US Federal Reserve raise interest rates aggressively to fight inflation, hurting the outlook for energy demand and sapping investors’ appetite for risk.
The tightening measure has helped to drive the US dollar to a record high, making commodities priced in the currency more expensive for overseas buyers.
The slump in prices may induce the OPEC and its allies to consider intervening to stem the slide, either verbally or by announcing a reduction in output. Earlier this month, OPEC+ announced a token supply cut, and said members would monitor the market.
The upward pressure on the dollar “is a wrecking ball for commodities,” Gary Ross, the chief executive officer of Black Gold Investors LLC, told a conference in Singapore, flagging scope for OPEC cuts. “The supply-demand balance has caught up and, as we’re entering the fourth quarter, we’re building stocks,” he told Bloomberg.
Crude traders were also keeping tabs on the path of Tropical Storm Ian, which is expected to strengthen into a hurricane this week as it approaches the Florida mainland.
The continuing decline in oil prices followed a sharp fall on Friday. Prices hit an eight-month low as concerns about a possible recession continue to trouble investors amid monetary tightening by central banks globally to rein in inflation as well as a strong dollar.
The slump in prices may prompt the crude oil exporters’ group, OPEC, and its allies to consider intervening to stem the slide. However, analysts believe the current conditions make such market interventions unlikely and ineffective.
In July, the International Monetary Fund (IMF) lowered its growth forecast for the global economy to 3.2 per cent this year, from its previous projection of 3.6 per cent in April.
The World Bank has also slashed its 2022 growth forecast for the global economy, for the second time this year, to 2.9 per cent, from 3.2 per cent.
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