Oil prices fell on Monday as the Asian stock markets hit two-month lows in a downward spiral prompted by worries about the fate of the global economy, having been as high as $53 a barrel last week. Brent was down 1.4 per cent to $49.67 and US benchmark West Texas Intermediate fell 1.5 per cent to $48.15.
This is as a result of the drop counters reports from both the oil cartel, the Organization of Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA), in which they renewed forecasts that the market would return to supply-demand balance by the second half of this year.
Also, the sabotage attacks on major oil pipelines and infrastructure in Nigeria which has slowed down the country’s overall production by around 100,000 barrels per day in May, has also had its bearing on the oil price
Consequently, traders instead focused on the fact that the OPEC report failed to lift the forecast for global demand growth, while the IEA update explicitly warned over the huge supply overhang remaining in the market that will take some time to work through.
“There is an enormous inventory overhang to clear,” the energy agency said, reports the Daily Mail. “This is likely to dampen the prospects of a significant stabilisation in oil prices.”
So far, official broker forecasts consistently indicate that the market expects prices to be stuck around $50 until at least next year.
The recent rise in the dollar, which could be higher if there is a vote for Brexit at the EU referendum this month, will make oil more expensive for overseas buyers and is likely to curb demand.
Michael Tran, the director of energy strategy at RBC Capital Markets in New York, said the oil price is at a “bit of an inflection point… right now” and that “geopolitics will likely get worse before they get better”.
Recently, the Organization of Petroleum Exporting Countries (OPEC) met in Vienna, Austria to decide on a balanced oil market but could not come to a head. Does the recent fall in oil prices create that balance? Already in Europe, analysts say the recent drop will deeply impact on their economies and may even lead to unemployment.
Presently, Nigeria has deregulated its downstream oil sector and adopted a new forex policy. The present administration has also made attempts to diversify its economy. But the fact remains: the country is still largely dependent on oil revenue. How does this impact on the Nigerian economy this Q2? Is recession in the offing?