Brent crude oil futures fell below $70 per barrel for the first time since December 2021, marking a new downturn in prices driven by strong supply, demand concerns, and widespread speculative selling.
The global benchmark dropped by 2.8%.
However, U.S. supply disruptions from Tropical Storm Francine provided some support for prices. Brent crude futures fell by 48 cents, or 0.67%, while U.S. West Texas Intermediate (WTI) crude dropped 42 cents, or 0.6%, to $68.29. Both benchmarks had gained around 1% on Monday.
Oil prices relinquished the previous day’s gains on Tuesday, as a weaker demand outlook and concerns over global oil oversupply continued to pressure the market.
Disappointing economic data from China and the US has raised concerns about oil demand in the world’s top two consumers, fueling fears of a potential surplus next year. These concerns are further exacerbated by increasing production from countries outside the Organization of Petroleum Exporting Countries (OPEC).
What this means
The drop in crude oil prices is set to add more pressure to the naira which has weakened to nearly N1,600/$ in the past weeks. This is despite intervention by the Central Bank of Nigeria (CBN) in selling USD to Bureau De Change (BDCs) below the official rate.
Last week, the apex bank announced it will sell $20k to eligible BDCs at N1,584/$ in a move to shore up liquidity and meet market demand.
Furthermore, the drop in oil prices presents a new challenge for the federal government as the benchmark crude oil price in the 2024 budget was set at $77 per barrel. To compound the woes of the federal government, crude oil production in the year so far has not met the set production benchmark in the 2024 budget of 1.7 million bpd.
Also, the federal government has been unable meet the OPEC set quota for crude oil production of 1.5 million barrels. Latest data released today by the oil cartel reveals that Nigeria average oil production rose marginally to 1.352 million barrels per day.
Lower crude oil prices could result in lower petrol prices- a sign of relief for Nigerians who have seen crude oil prices soar over the roof in the past few weeks. Last week, the NNPCL increased the pump price of petrol from just over N600 per litre to N897.
The ongoing dispute between authorities and Dangote Refinery over petrol pricing has only worsened the situation for Nigerians, who are already enduring one of the most severe cost-of-living crises in a generation.
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