Against odds, oil price hits 3 years high of $75

• Latest oil price surge first since Nov 2014
• Tension in Middle East triggers oil increase
Following simmering Mideast tensions and keen United States demand, global oil price for the first time in three years, surged to $75 a barrel on Thursday.

Agence France Presse (AFP) also reports that as of close of Thursday trading, the World oil prices extended Wednesday’s gains on the back of data showing a drop in US stockpiles — indicating improved demand — and expectations that a Russia-OPEC output cap deal will be kept in place.

But the International Monetary Fund (IMF) earlier in the week projected that Nigerian economy will grow from 0.8 per cent in 2017 to 2.1 per cent by the end of 2018, while warning of possible crash in crude oil prices.

Experts ,however, believe that Saudi Arabia still calls the shots on global oil markets, and it is increasingly obvious the Saudis are comfortable with oil at $80 or more.

The Daily Times recalls that the latest oil price surge is the first since November 2014, while London Brent struck $74.44 per barrel and New York crude touched $69.27.

Asian markets enjoyed another day of gains on Thursday as the region’s energy firms also tracked a surge in oil prices.

The Organisation of the Petroleum Exporting Countries (OPEC) and other major producers including Russia started to withhold output in 2017 to rein in oversupply that had depressed prices since 2014.

OPEC and its partners will meet in Jeddah, Saudi Arabia on Friday (today). OPEC will then meet on June 22 to review its oil production policy.

Since the start of the supply cuts, crude inventories have gradually declined from record levels toward long-term average levels.

Further supporting oil prices is an expectation that the US will re-introduce sanctions against Iran, OPEC’s third-largest producer, which can result in further supply reductions from the Middle East.

The Daily Times, during the week reported that there is high likelihood that the global crude oil price may gain further, following JP Morgan prediction that if Europe reimposed sanctions alongside the United State, that the crude worth may be pushed towards $80 per barrel (pb), if not more.

But Nigeria’s Bonny Light crude oil price at the weekend hit $72pb, its highest peak since 2014, supported by OPEC led production cuts, and the U.S. military action in Syria.

Nigeria’s crude oil production also increased from 1.792mbpd in February to 1.810mbpd in March.

OPEC and allies including Russia are keeping crude oil supply limits in place in 2018, to reduce a price-denting glut of oil held in inventories.

President Donald Trump administration on April 7 imposed new sanctions on seven of Russia’s richest men and 17 top government officials in the latest effort to punish President Vladimir Putin’s inner circle for interference in the 2016 election and other Russian aggressions.

Deshpande agreed that reinstated Iranian sanctions next month were a risk for markets, albeit one that was likely already largely priced in by markets and so would only add US$2 to US$5 to oil prices.

The greater risk, he said, was that Europe also reimposed sanctions alongside the US, a scenario that would push crude “at least towards US$80, if not more”.

While “definitely not a good thing” for markets already struggling with an array challenges, a 10 per cent climb in crude this year and a 25 per cent rise year-on-year “isn’t the kind of stuff that qualifies as an oil shock by any standard”, JP Morgan head of cross-asset strategy John Normand said.

Another leg higher to US$80 or higher in crude prices would, however, “prevent risky markets from making the gains they deserve to make in the second quarter,” Norman said.

“Whilst the risks to oil supply from possible sanctions on Iran or Russia and from damage to oil infrastructure are significant, we still expect the market to be in surplus this year and the recent surge in prices is only likely to incentivise further increases in drilling rigs and output, especially in the US,” the Capital Economics team said.

Deshpande, however, doubted that US shale would be able to respond sufficiently to fill the shortfall in supply, while OPEC countries would be “slow to respond”. That would see oil prices “remaining higher towards the end of the year”.

Nearly 500,000 have been killed in the long-running Syrian conflict, while the Yemen civil war has left an estimated 10,000 dead since it began in 2015.

According to its latest World Economic Outlook (WEO) Report launched in Washington DC on Tuesday, the Fund projected that Nigeria will also grow by 1.9 per cent in 2019.

The IMF, however, advised oil-dependent economies, including Nigeria, to intensify economic diversification as the global body foresees the crash of crude oil prices in the near future.

“Some low-income countries like Mozambique and Nigeria have experienced financial stress or deteriorating loan quality in recent years as growth has moderated and corporate balance sheets have weakened.

“Further deterioration in loan quality would impair credit intermediation and the ability of the banking sector to support growth, which would raise the risk of cost recapitalisation and severely burden the already strained public finances,’’ the IMF said.

The IMF Director of Research, Mr c at the WEO press conference, said that global economy would grow by 3.9 per cent in 2018.

Obstfeld said the forecast was borne out of the continued strong performance in the Euro area, Japan, China and the United States.

“Despite the good near-term news, longer-term prospects are more sobering. Advanced economies are far facing aging population, falling rates of labour force and low productivity growth.

“Emerging and developing economies present a diverse picture. Many of these countries need to diversify their economies to boost future growth and resilience,’’ he said.

According to Obstfeld, global financial conditions remained loose, despite the approach of higher monetary policy interest rates and enabling a further buildup of asset-market vulnerabilities.

He said that the recent escalating tension over trade (United States vs China) presented a growing risk for global financial stability.

“The prospect of trade restrictions and counter-restrictions threatens to undermine confidence and derail global growth prematurely.

“While some governments are pursuing substantial economic reforms, trade disputes risk diverting others from the constructive steps they would need to take now to improve and secure growth prospects,’’ he said.

The IMF encouraged each national government to advance growth by resolving issues of climate change, infectious diseases, cyber-security, corporate taxation and corruption, among others.