Culled—Proshare

September 7, 2020

by FBNQuest Research 

The week in April when traders and shippers had to pay to be rid of their cargoes of WTI crude seems a distant memory, and the price of UK Brent in recent weeks has settled at +/- US$45/b. US storage capacity was said to be close to fully utilized, Saudi and Russia were locked in a battle for market share, and Covid-19 was raging across Europe. The leading lights in OPEC+ are again friends, and the Saudi energy minister claimed on 19 August, citing international oil agencies, that global demand for crude would be back at 97% of pre-Covid levels in Q4 2020.

The price has held despite a pick-up in OPEC output in July by 970,000 b/d to 23.3mbpd and in US production by 1.2mbpd to 10.9mbpd over roughly the same period. For OPEC the explanation was an end to voluntary cuts by Saudi and Gulf allies. US output was still far short of its recent peak of 13.0mbpd.

We are comfortable with the current price range, and think that the next move is more likely to be another leg upwards. The main risk, we feel, is the imposition of second national lockdowns in large consuming nations. Our view is that, having seen double-digit GDP contraction amid the economic carnage resulting from the first lockdowns, governments across the world will be extremely reluctant to repeat the exercise.

The minister of state for oil was quoted by the wires last week as saying that Nigeria was producing 1.412mbpd (excluding condensates). This would be in line with its quota within aggregate cuts of 7.7mbpd through to end-year.

Average price of Bonny Light crude (US$/b)

Sources: CBN; FBNQuest Capital Research

At current price levels and together with multilateral loans (disbursed and pending), we think that the CBN can muddle through with its fx policy of managing and guiding the rate. Unification is not a core battle to win. The danger for the CBN, the FGN and OPEC+ as a whole is that the international price moves up too quickly and rescues the struggling US shale oil industry.