Oil prices end 3-day rally on demand concerns

Oil prices faced a setback in their recent rally due to an unexpected rise in US oil inventories, causing concerns about demand in the market. Wonuola Akanbi, the Head of Energy and Infrastructure sales at Global Markets, Stanbic IBTC Bank, shed light on the current dynamics of the global oil market and its impact on Nigeria. Akanbi discussed the ongoing output cuts by OPEC and its allies, which aimed at reducing production by 1.2 million barrels per day. Surprisingly, these cuts have not led to the price surge analysts anticipated, with oil prices still hovering around $76 to $77 per barrel. The sluggish performance can be attributed to slowing economies in the West, such as the US, which experienced 25 basis point hikes in May. While there are positive signals from the Federal Reserve, the uncertainty remains based on incoming data. Additionally, the European Central Bank and Bank of England continue to maintain their current policies, affecting global oil demand. Despite the unexpected rise in US oil inventories causing demand concerns, Akanbi emphasized the importance of staying the course with current strategies to see gradual improvements. Although Nigeria is not part of the output cuts, the country faces challenges in meeting production targets and budget goals. Nigeria's reserves have declined to $5 billion, affecting the country's fiscal stability and revenue generation. Similar oil-producing countries like Angola also struggle to meet production targets, leading to liquidity challenges. With Nigeria's oil production currently at 1.5 million barrels per day, Akanbi highlighted the need for enhanced security and increased capital investment to boost production levels. Factors such as oil theft and infrastructure disruptions pose significant obstacles to achieving higher production rates. Akanbi emphasized the importance of maintaining stability and addressing security issues to attract further investments and improve production capacity. Looking ahead, Akanbi shared insights on OPEC's upcoming monthly report, expecting production levels to remain stable barring unforeseen disruptions. Discussion shifted towards Nigeria's Dangote Refinery, set to commence operations on May 22nd, with projections to reduce the country's reliance on fuel imports and boost exports. However, Akanbi pointed out that while the refinery may alleviate some cost burdens, it may not significantly lower petrol prices without government subsidies. The transition to a new administration could see a phased approach to address fuel subsidy challenges in Nigeria. Akanbi also discussed recent fiscal developments, such as the issuance of a 40-year bond at 9% interest through the Ways and Means Committee. This move is seen as a positive step in reducing the government's interest rate costs, providing flexibility in debt servicing and fiscal planning. However, concerns arise regarding the sustainability of debt levels and the need for prudent financial management in the future. Despite the volatility in the oil market, Akanbi's insights offer valuable perspectives on navigating challenges and opportunities in the energy sector.