Oil Prices Rise, Interbank Rate Jumps

• Oil Prices Rise, Interbank Rate Jumps

Oil futures climbed on Friday as signs of the market tightening after major oil producers agreed to cut output helped set prices up for a modest gain on the week.

The nation’s interbank lending rate also rose to close at 11.5 per cent on Friday, up from seven per cent the previous week as payments for bond and treasury bills purchases drained liquidity from the money market.

On the New York Mercantile Exchange, February West Texas Intermediate crude CLG7, +1.99 per cent jumped $1.47, or 2.9 per cent, to $52.84 a barrel. The contract, which expires at the day’s settlement, finished last Friday at $52.37; so it was trading around 0.9 per cent higher for the week, according to FactSet data.

The report said March Brent crude LCOH7, +2.42% on London’s ICE Futures exchange advanced by $1.54, or 2.8 per cent, to $55.7- a barrel—up around 0.5 per cent for the week.

Saudi Arabia’s Energy Minister Khalid al-Falih, speaking at the World Economic Forum in Davos last week, reportedly said that there had been strong compliance among members and non-members of the Organisation of the Petroleum Exporting Countries to the production cut agreement that kicked in at the start of the year.

News reports also quoted him as saying on Friday that 1.5 million barrels a day of the roughly 1.8 million in cuts pledged by OPEC and non-OPEC countries had already been taken out of the market.

Al-Falih also warned that there could be a shortage of oil supply by 2020 if investment flows continued at their current rate, according to the CNBC.

Comments from Saudi Arabia regarding progress on the output cuts “is giving the market some increased confidence that cheating will be limited and markets will continue to rebalance,” a senior energy analyst at Edward Jones, Brian Youngberg, told MarketWatch.

A committee created to monitor oil-producer compliance with the promised cuts was scheduled to meet at the weekend, the report added

“Since there are mixed expectations on how much of the cuts will come to fruition, any comments one way or the other will sway markets any particular day,” said Youngberg.

In a monthly report issued last week, the International Energy Agency said OPEC production had slowed, declining by 320,000 barrels a day to 33.09 million barrels in December.

“Early indications suggest a deeper OPEC reduction may be under way for January, as Saudi Arabia and its neighbors enforce supply cuts,” the IEA said.

Meanwhile, traders said the lending rate jumped on Friday as some banks scrambled for cash to pay for bonds and treasury bills, Reuters reported.

The Federal Government had on Wednesday raised N214.95bn ($704m) from local currency bonds at its first auction this year, with payment for the bonds due on Friday.

The naira weakened slightly at the open or unofficial market to 498 to the dollar against 497 previously as inadequate greenback supply pressured the local currency.

The local currency, however closed flat at the official interbank window at 305.50 to the dollar, the level it has traded at since August last year.

Travelex, an international money transfer firm, sold around $20m to 2,500 Bureaux de Change operators on Thursday at $8,000 each, but the supply was not enough to calm the market, traders said.

The BDCs quoted their official selling rate at 399 to the dollar on Friday.

The government has been pressing retail operators to narrow what it says is a damaging gulf between the naira’s official rate and the unapproved open retail market.

“We see the interbank rate drop below the double-digit next week on anticipation of budgetary disbursal to government agencies,” one trader said.

Traders said the local currency might firm a bit as international money transfer agents planned to sell another round of dollars to the bureau de change operators next Thursday.