Oil Market Defies US-led Coalition’s Strategy to Lower Rising Prices

Emmanuel Addeh in Abuja

Despite the United States-led coalition’s strategy to cool oil prices, the market remained steady yesterday, with Brent, Nigeria’s benchmark oil, still above $80 per barrel.

Precisely, Brent crude futures gained seven cents to $82.32 a barrel yesterday, while the West Texas Intermediate (WTI) crude futures fell marginally by 12 cents, or 0.2 per cent, to $78.27 a barrel, still a far cry from the coalition’s expectations.

Investors are waiting for how major producers respond to the emergency oil release designed to tone down prices, with the Organisation of Petroleum Exporting Countries (OPEC), Russia and allies, called OPEC+, expected to meet on December 1st and 2nd to set policy.

But OPEC expects the United States’ release to swell a surplus in oil markets by 1.1 million barrels per day (bpd), a source from the group said, although for now the decision by the coalition has largely backfired.
The United States and other high oil-consuming nations, including China, Britain, India, Japan and South Korea, had on Tuesday made good their threat to counter a slower-than-expected release of oil barrels by OPEC in a coordinated bid to reduce rising crude prices.

OPEC+ producers have repeatedly ignored calls for more crude by the US President, Joe Biden, prompting the country to mobilise a handful of high oil consuming nations to release the commodity from their Strategic Petroleum Reserves (SPR).

Crude oil prices recently touched seven-year highs and although they are still some way short of levels reached between 2011 and 2014, when they broke through $100 a barrel, many consumers are feeling the pain of a dramatic increase from a year ago.

While the US announcement is for a release of 50 million barrels, the equivalent of about two and a half days of the country’s demand, India would release 5 million barrels, while Britain would allow the voluntary release of 1.5 million barrels of oil from privately held reserves, according to the agreement.

OPEC has been struggling to meet existing targets under its agreement to gradually increase production by 400,000 barrels per day (bpd) each month – a pace Washington sees as too slow.

Nigeria, an OPEC member has said that even if prices fall to between $50 to $60, it won’t be much of an issue, with the country’s oil benchmark for the 2021 budget being $40.
The cartel’s situation has been further worsened by the inability of mostly African countries led by Nigeria to meet their allocation, due largely to waning investment, ageing upstream infrastructure and disruptions by some local host communities.

Three sources told Reuters yesterday that OPEC+ was not discussing pausing its oil output increases, despite the decision by the United States, Japan, India and others to release emergency oil stocks.
OPEC members the United Arab Emirates and Kuwait said they were fully committed to the OPEC+ agreement and had no prior stance ahead of next week’s meeting. Nigeria, a strong member of the organisation has always aligned with the decision of the majority.

Iraq, also an OPEC member, said it backs continuing OPEC+’s existing plan of raising output by 400,000 bpd a month, saying the outlook for the oil market was unclear due to turbulence in global markets.
High oil prices have added to inflationary concerns, with the coordinated release expected to add around 70-80 million barrels of crude supply to markets, according to analysts at Goldman Sachs.
The US Department of Energy had launched an auction to sell 32 million barrels of strategic petroleum reserves(SPR) for delivery between late December to April 2022. It plans to release another 18 million barrels soon.

Some OPEC delegates warned this week that releasing strategic reserves may lead to the alliance holding back crude supply in January, a development that will further starve the market of its much needed supply.
In addition, the International Energy Agency (IEA) has accused Saudi Arabia, Russia and other major energy producers of creating “artificial tightness” in global oil and gas markets, urging OPEC+ to accelerate the return of supplies.

Predictions on the response are mixed. Citigroup Inc. said OPEC+ is likely to stick to its planned increase of 400,000 barrels a day for January because reducing supply would erode the group’s claim of providing public good by stabilising oil markets, while others feel the alliance will suspend the hike to provide a buffer to demand headwinds.

However, the OPEC advisory body has predicted that the excess in markets would expand by 1.1 million barrels a day in January and February to 2.3 million and 3.7 million a day, respectively. That is, if 66 million barrels are injected by major consumers over the two-month period, according to a document leaked to the public.

If Nigeria keeps to its assurances to ramp up production by the end of this year, according to the Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), the country would be producing as much as 1.8 million bpd by December ending.

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