Nigeria Backs Naira-Based Crude Sales as Libya Concerns Lift Global Oil Prices

Price

• Oil prices held mostly steady on Thursday as a smaller-than-expected draw in U.S. crude inventories and continued worries over China demand countered supply disruptions from Libya.
• Brent crude futures were down 1 cent, or 0.01%, at $78.64 a barrel at 0043 GMT, while U.S. West Texas Intermediate crude futures were up 8 cents, or 0.1%, to $74.60. MCX crude oil prices opened at 6,270, reflecting a 0.29% decline.

Demand and Supply

• Both contracts lost over 1% on Wednesday after data showed that U.S. crude inventories dropped by 846,000 barrels to 425.2 million barrels last week, less than analysts’ expectations in a Reuters poll for a draw of 2.3 million barrels.
• Losses were limited, however, by concerns over disruptions to supplies from Libya, a member of the Organization of the Petroleum Exporting Countries (OPEC).
• Several oil fields in Libya have halted production amid a fight for control of the country’s central bank, with one consulting firm estimating output disruptions of between 900,000 and 1 million barrels per day for several weeks.
• In July, Libya produced about 1.18 million barrels per day (bpd).
  “Supply-side issues continue to hang over the market. Libyan output has more than halved this week amid a political dispute,” ANZ Research said in a note. “Output is at risk of falling further as more fields close.”

News

• A group, the Natural Oil and Gas Suppliers Association of Nigeria (NOGASA), has expressed support for the federal government’s directive for crude oil to be sold to Dangote and other local refineries in Naira to stabilize the market.
• National President of NOGASA, Benneth Korie, who addressed journalists yesterday in Abuja, noted that the Dangote refinery would bring healthy competition that would help boost supply and stabilize both the currency and the nation’s economy.
• He said: “Regarding refined products, we must foster a competitive environment to ensure the healthy circulation of petroleum products, and to this end, I commend Aliko Dangote for his monumental contribution to our industry through the establishment of the largest refinery in Nigeria.
• This development promises substantial benefits, including enhanced supply, increased competition, and a bolstering of our national economy and currency.”
• Basrah crude prices dropped despite global oil markets rebounding after two days of losses. Concerns over potential oil supply disruptions from Libya drove global prices higher, though a smaller-than-expected decline in U.S. crude stockpiles left investors unimpressed.

Expert Opinion

• The expectation that the U.S. central bank will start cutting interest rates next month also supported oil prices, with Federal Reserve Bank of Atlanta President Raphael Bostic saying that with inflation down further and unemployment up more than anticipated, it may be time for cuts.
  Lower interest rates decrease the cost of borrowing, which can boost economic activity and increase demand for oil.