Too early to rejoice as oil price hits $35

Energy experts in Nigeria are uncertain of the sustainability of current increase in the prices of crude oil, as Brent rose to $35.14 per barrel, while Bonny Light traded for $33.92 gaining about $4.11.

While the other grades of Nigeria’s crude – Brass River, and Qua Iboe stood at $35.20, some experts urged the Federal Government to carefully study the trend before making decisions.

Surging to two-month highs, the current increase has been linked to growing signs of a rebound in oil demand, as the easing of lockdowns from the outbreak of Coronavirus takes effect across the world.

Indeed, the reopening of economy in world’s top oil importer, China has pushed its demand back to pre-coronavirus levels, a report by Bloomberg said, even as the price increase comes on the backdrop of accelerated production cuts from all oil producers.

Reportedly, refineries in China had increased their run rates by 11 per cent in April, thanks to easing of lockdown, as the refiners operated with 13.1 million bpd run rates in April. The rate was higher than the average for the same month in 2019.

At about 3:35pm yesterday, U.S crude; WTI also saw June contract expiring on today trading at $33.15, the highest level since the second week of March.

Renowned economist, Segun Ajibola, noted that easing of lockdown would continue to bring increase in global demand for key production inputs such as oil and gas.

He said the oil price rebound was good news, adding that a post-pandemic era is usually laced with attempts at reconstruction to regain lost ground.

“So we expect increase in global demand for key production inputs such as oil and gas. We don’t know whether that is what is driving the upward swing in price of Brent with delivery in 90 day time. Or whether it is still a reflection of high wire politics and the intrigues we have been witnessing in recent times. We pray for the sustenance of the price increase. It is a good omen for Nigeria,” Ajibola said.

Also, energy expert, Madaki Ameh, said it is too early to decide on the sustainability of the recent increase in prices, as it is not Uhuru for Nigeria, stressing that the country needs to quit the wasteful sale of crude oil and face the sale of refined products only.

“If we do that, we will never be apprehensive about the movement of crude oil prices,” Ameh said.

A former President, Nigerian Association for Energy Economists (NAEE), Prof. Wumi Iledare, said oil price would remain sustainable since there is no spike in the U.S. as the economy gradually opens up and people remain socially responsible.

He also said production adjustments that limit inventory growth as demand inches up could sustain price, but this requires discipline by OPEC+ producers in terms of production management.

Iledare also said price would rally further on expectations that international airports would soon be opened to increase demand for fuels.

“In summary, price inching up and stable, though, remains stochastic but plausible subject to highlighted but not exhaustive non price factors affecting demand and supply of crude oil,” Iledare said.