Nigeria’s Brass River, Bonny Light, and Qua Iboe are trading below $90 per barrel but much higher than the current Brent contract as oil traders take into account China’s negative economic data.
Worries that a slowing Chinese economy might hamper demand, and rising hopes that the U.S. Federal Reserve may begin cutting its benchmark interest rate as early as September capped the oil market’s upside.
Brent futures dropped more than 67 basis points to trade at $84.3 a barrel, while U.S. West Texas Intermediate (WTI) crude declined by more than 70 basis points to $81.3 a barrel.
The second-largest economy in the world grew by 4.7% in April and June, less than the 5.1% growth expected, and at its lowest rate since the first quarter of 2023, according to official statistics.
China, the world’s second-largest economy increased by 4.7% in April and June, less than the 5.1% predicted growth and the lowest growth since the first quarter of last year.
Additionally, it decelerated from the 5.3% expansion of the previous quarter, hindered by a prolonged decline in real estate and employment instability. The three U.S. inflation readings for the second quarter of this year, according to Fed Chair Jerome Powell, “add somewhat to confidence” that the pace of price increases is returning to the central bank’s target sustainably. Market participants took Powell’s comments to mean that interest rate cuts may not be far off.
Lower interest rates make borrowing less expensive, which may increase oil demand and stimulate the economy. Nigeria produced slightly more oil per day in June than it did in May. The country in West Africa recorded a 25,000-barrel increase in oil production every day.
Nigeria’s oil production remains lukewarm
The Organization of the Petroleum Exporting Countries Monthly Oil Market Report for June showed Nigeria produced 1.27 million barrels per day in June.
Nigeria’s oil production fell, from 1.28 million barrels per day in April to 1.25 million barrels per day in May. On the other hand, the number provided by OPEC’s secondary sources shows a decrease from 1.37 million barrels per day in May to 1.36 million barrels per day in June.
Although there has been a little progress based on OPEC’s recent data, Nigeria’s economic problems persist as it continually borrows money to offset the sustained decline in foreign cash inflow amid weak oil output. Nigeria, the continent’s leading producer of crude oil, is home to Africa’s second-largest oil reserves.
Crude oil exports account for more than 80% of Nigeria’s foreign exchange revenues, declines in output have negatively impacted the country’s economic fortune
The price of a barrel of crude oil has been stable for a while now at over $80, yet Nigeria has not increased output significantly during that time. The nation has attributed its ongoing incapacity to increase production considerably to years of underinvestment, major acts of vandalism against oil assets, oil theft, and decaying infrastructure in the Niger Delta.
The West African country turned to borrowing to supplement the meager foreign cash influx into the nation’s foreign exchange market. In the first nine months of 2023, the country borrowed $1.71 billion from overseas lenders to increase foreign exchange inflows.
The Nigerian National Petroleum Company Limited, the country’s state-owned oil company, declared in August of last year that it had obtained a $3.3 billion loan from Cairo-based AfreximBank to repay crude oil. This loan will help the government implement reforms to stabilize the exchange rate market.