…….by Jenifer Dike……..
The price of crude rose above $56 per barrel on Tuesday, buoyed by Saudi Arabia’s plans to limit supply, even as Federal government weighs increase in pump price of Premium Motor Spirit (PMS) otherwise know as petrol,. And as it’s pump price is benchmarked with international crude oil price.
The rise in crude price again is not unconnected to the worries that rising coronavirus cases globally would curtail fuel demand.
However, concerns are being raised of any plan by government and the petroleum products marketers to respond to international crude price with corresponding increase in pump price.
While the sustained increase in oil price means a potential boost to Nigeria’s crude oil export revenue, experts say it will further push up the landing costs of petroleum products being imported into the country.
The 2021 budget, which was signed by the President, Muhammadu Buhari, on December 31, was based on an oil price benchmark of $40 per barrel and a production level of 1.86 million barrels per day.
Brent crude, against which Nigeria’s oil is priced, was up 95 cents, or 1.7 per cent, at $56.61 per barrel as of 8:55pm Nigerian time on Tuesday after touching its highest since last February at $56.75.
Saudi Arabia plans to cut output by an extra one million barrels per day in February and March to keep inventories in check.
The Saudi cut is part of an OPEC-led deal in which most producers will hold output steady in February.
Last year’s record cuts from OPEC and its allies helped oil recover from historic lows reached in April. Some analysts believe the oil complex is underestimating supply levels.
“Storage at Cushing is only 10.2 million barrels below the all-time record high, so there is no problem with supply here in the U.S., but the complex is responding positively to this chatter about undersupply,” said Bob Yawger, director of energy futures at Mizuho.
Oil also gained on expectations for a drop in US crude stockpiles. Analysts expect crude inventories to fall by 2.7 million barrels for a fifth straight week of declines.
The West Texas Intermediate Crude Oil market has seen a bit of bullish pressure during the trading session on Tuesday again to break above the $53 level. That being said, the market looks as if it is ready to go to the next major resistance barrier in the form of the $55 level. I do believe that the $50 level underneath is going to continue to be supported, so we are essentially in the middle of this overall range. However, I think that given enough time we will continue to see buyers try to break higher based upon the idea of the “reflation trade.” Buy the dips has worked for some time, and I think that will continue to be the case for the time being.
Brent markets rallied significantly during the trading session on Tuesday as we continue to see money pump into commodities overall. Brent is very likely go looking towards the $60 level, which of course is a large, round, psychologically significant figure. I think in the short term we will get the occasional pullback, but the reality is that a lot of traders will look at these pullbacks as potential buying opportunities, as this market has been so strong for so long. With this being the case, I think that the $50 level underneath will be essentially the “floor the market”, and therefore should continue to attract a lot of attention. Furthermore, the 50 day EMA is sitting just below there, and tilting higher. With that being the case, I think that it is not until we break significantly below the $50 level that I would be concerned