Global oil prices have surged to a 2-month high on growing signs of a rebound in oil demand. The oil rally extended to the fourth day, amid signs that producers are implementing output cuts as promised, with demand picking up due to global easing of lockdowns and hope for the positive test result of a coronavirus vaccine.
The Nigerian headline crude, Bonny light, surged by 13.77% as it hit $33.95 per barrel, getting to a 2-month high. The Brent crude has also hit a 2-month high, selling for $35.02 per barrel as at 10.00 am Nigerian time. The American WTI is selling for $32.60 per barrel.
At the peak of the global lockdown in April, about 3.9 billion people were affected, but now an estimated 3.7 billion people are living in geographical locations that are experiencing easing of lockdowns and various versions of reopening.
The June WTI contract expires on Tuesday, but it’s unlikely that there will be a repeat of the historic crash to less than zero that was experienced last month on the eve of the expiry of May’s contract. This is largely due to the gradual recovery of demand for crude and its derived products.
The positives in the oil market are also triggered by the implementation of output cuts by OPEC+ and other top oil-producing countries. This is just as Saudi Arabia and the United Arab Emirates announced and advocated for output cuts, in a move aimed at rebalancing the market.
The crude oil market also got a further boost after signs that progress on the global vaccine front is being made. The American Biotechnology company, Moderna Inc, on Monday, said that its vaccine had shown to be safe for humans and also demonstrated promising results in stopping Covid-19.
Meanwhile, AstraZeneca has disclosed that it could have 30 million doses of its vaccine ready by September.
However, according to Rystad Energy, the physical oil market is not out of the woods yet, as there is still a 13.7 million barrel of crude per day stock build-up in May 20. Although this is a reduction from the peak of the oil glut when it was a 26.7 million barrel per day inventory buildup in April, a significant overhang still remains.
The current situation in the oil market is a huge boost for the Nigerian government which has been going through an unprecedented fiscal crisis. The crash in global crude oil prices has made the Federal Government approve a further downward revision of the oil benchmark for the 2020 budget to $25 per barrel.
This will help improve the country’s revenue, reduce its budget deficit and improve its foreign exchange earnings, as oil contributes about 90% to its exports earnings.