Oil surged to a five-week high on Monday after Saudi Arabia and Russia signalled an extension of the non-members of the Organisation of Petroleum Exporting Countries (OPEC+) output cuts and a United States (U.S.)-China agreement to restart trade talks improved the demand outlook.
WTI oil for August delivery climbed $1.64 to $60.11 a barrel on the New York Mercantile Exchange in London. The contract added 9.3 per cent last month.
Brent for September rose $1.84, or 2.8 per cent, to $66.58 a barrel on the ICE Futures Europe Exchange. The August contract expired Friday. The benchmark global crude traded at a premium of $6.43 to WTI.
Consistent rise in oil prices, analysts say, is good for the implementation Nigeria’s N8.91 trillion budget 2019. The country, a member of OPEC, relies on crude oil sale for foreign exchange (forex) to implement development projects.
The budget was based on estimated crude production of 2.3 million barrels a day, oil price benchmark of $60 per barrel and an exchange rate of N305 to the dollar.
The Senate had increased the 2019 budget by N80 billion, up from the N8.83 trillion presented by President Muhammadu Buhari to lawmakers last year.
Parliament said the 2019 budget was aimed at consolidating growth.
It approved a budget deficit of N1.9 trillion, representing 1.37 per cent of GDP.
Nigeria’s economy grew by 1.93 per cent last year, its fastest pace since a recession two years earlier, data showed, while inflation 11.40 per cent in May.
Other OPEC members have indicated their support for the agreement between Russian President Vladimir Putin and Saudi Crown Prince Mohammed Bin Salman to prolong the curbs by six to nine months as meetings on production policy start in Vienna. President Donald Trump and his Chinese counterpart Xi Jinping declared a truce to their trade war and the U.S. will hold off on imposing additional tariffs on China.
Oil rose by the most since January last month after escalating tensions in the Middle East spurred concerns over supply. Iran, Saudi Arabia’s political adversary, became the latest OPEC member to back extending the group’s output curbs for as long as nine months as ministers seek to counter a weak demand outlook and surging American production.
“A broad consensus around extension is forming without much opposition as the producer group recognises it has two major issues to contend with,” said Harry Tchilinguirian, head of commodity-markets strategy at BNP Paribas SA.
“The first being economic uncertainties tied to trade wars — despite this weekend’s positive Trump-Xi meeting — that can weaken global oil demand growth, and the second more obvious one, which is strong U.S. shale oil supply growth.”
Nigeria, Venezuela, Iraq and Oman also expressed their conditional support for an extension of as long as nine months, which isn’t the OPEC policy playbook as the oil-club has traditionally aimed for half-year deals. The leaders of Russia and Saudi Arabia, the dominant members in the OPEC+ alliance, settled on the idea of extending the cuts into next year during the G-20 meeting in Japan.
“The longer the horizon, the stronger the certainty to the market,” OPEC Secretary-General Mohammad Barkindo said on Sunday in Vienna after meeting with Saudi Energy Minister Khalid Al-Falih.
The resumption of U.S.-China trade talks was a reprieve from a demand outlook that’s been hurt by the entrenched dispute. Still, the International Monetary Fund (IMF) Managing Director Christine Lagarde warned that the global economy is in a “rough patch” with unresolved issues on trade posing the most serious risk for the future.
“What came out of the Trump-Xi meeting was probably the minimum,” said Vandana Hari, founder of Vanda Insights in Singapore. “It appears a little more positive than it actually is. I don’t expect a deal to happen anytime soon.”