Climate Change is a global battle that has been fought for years now, amidst fears that lack of care for the environment could negatively impact human beings and living conditions in years to come. The oil market is also under threat from the phenomenon, as there are predictions that rising sea levels could affect oil reserves in Nigeria.
In a study, risk consultancy firm Verisk Maplecroft discovered that climate change may lead to difficulty in Nigeria’s production of its large oil and gas reserves. Nigeria, Africa’s number two exporter, has most of its reserves in the Niger Delta region, which has a river system around it. This leaves the reserves vulnerable to possible drought and flooding due to climate change.
Apart from Africa, the report also said that the oil reserves in the rest of the world are in danger. The report cited problems like storms, rising tides and rising temperatures as possible affectors of the oil market.
An estimate of about 60 million, or a total of 40 percent of the world’s oil recoverable oil and gas reserves are under threat from the wild and volatile weather, according to the firm’s research. The most vulnerable to the attacks would include Saudi Arabia, Iraq and Nigeria.
However, Nigeria has come out to say that it has climate-related problems under control. The Minister of State for Environment, Sharon Ikeazor has said that the Federal Government of Nigeria has taken multiple steps as interventions in climate change, set to curb the problem. According to her, steps have also been made to increase the country’s resilience, to avoid strong consequences from climate change situations.
The Minister mentioned the Climate Change Bill which was passed by the National Assembly, which includes a long-term plan for the country to achieve a net zero carbon emission, national climate resilience and adequate financing for national development in the climate area.
Concerns Over Interest Rates Hike and Stronger US Dollar Weighed on Oil Prices
Oil prices dropped on the back of growing concerns over the possibility of the US Federal Reserve raising interest rates and the surge in dollar value against global counterparts.
Brent crude oil, against which Nigerian crude oil is measured, fell by $3.69 from $88.86 a barrel it peaked earlier today to $85.17 per barrel when the New York market opened. The US West Texas Intermediate crude oil shed $3.91 to $81.9 per barrel, down from $85.81 it opened during the Asian trading session.
The decline in oil prices was after the US dollar jumped to a two-week high on Monday against its global counterparts, largely due to the tension between Russia and the West over Ukraine and the likelihood of the Fed raising interest rates this week.
Francesco Pesole, a strategist at ING Bank, said the increase in dollar value could stall if the Fed signalled a preference for balance sheet reduction against the widely expected interest rate as means to tighten policy.
“If markets see the Fed willing to let balance sheet reduction do the heavy lifting, that may force a scaleback in forecasts for the number of rate hikes,” he said.
“The dollar will find more support from actual rate hike expectations than expectations of draining liquidity out of the market.”
Carsten Fritsch, an analyst at Commerzbank, explained that the crisis in both Ukraine and the Middle East “justify a risk premium on the oil price because the countries involved – Russia and the UAE – are important members of OPEC+”.
Tension in the United Arab Emirates rose on Monday following an interception of two Houthi ballistic missiles targeting the Gulf country after a deadly attack a week earlier.
Oil Extends Gain Above $86 Per Barrel Amid Tight Supply
Brent crude oil extended gains above $86.16 per barrel on Monday as global oil investors are projecting that supply will remain tight despite the surge in Libya crude oil production. The increase, they bet would be offset by restraint from top crude oil producers.
Frantic oil buying, driven by supply outages and signs the Omicron coronavirus variant will not be as disruptive to fuel demand as previously feared, has pushed some crude grades to multi-year highs, suggesting the rally in Brent futures could be sustained for a while longer, traders said.
“The bullish sentiment is continuing as (producer group) OPEC+ is not providing enough supply to meet strong global demand,” said Fujitomi Securities analyst Toshitaka Tazawa.
The Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, together known as OPEC+, are gradually relaxing output cuts implemented when demand collapsed in 2020.
But many smaller producers cannot raise supply and others have been wary of pumping too much oil in case of renewed COVID-19 setbacks.
Meanwhile, Libya’s total oil output is back to 1.2 million barrels per day (bpd), according to National Oil Corp. Libyan output was about 900,000 bpd last week owing to a blockade of western oilfields.
“Libya’s oil production had dropped to a good 700,000 bpd at the start of the year, which had played its part in the price rise,” said Commerzbank analyst Carsten Fritsch.
Concerns over supply constraints outweighed the news of China’s possible oil release from reserves, said Fujitomi’s Tazawa.
Sources told Reuters that China plans to release oil reserves around the Lunar New Year holidays between Jan. 31 and Feb. 6 as part of a plan coordinated by the United States to reduce global prices.
Saudi Energy Minister Prince Abdulaziz bin Salman said on Monday that it is the prerogative of the U.S. government whether to release supply from strategic petroleum reserves.
Festering geopolitical threats to supply are also supporting bullish sentiment, analysts said.
U.S. officials voiced fears on Friday that Russia was preparing to attack Ukraine if diplomacy failed. Russia, which has amassed 100,000 troops on Ukraine’s border, released pictures of its forces on the move.
Brent Crude Oil Trading at $84.53 a Barrel
The increase in Omicron variant cases has cast doubt on demand for crude oil in the near-term and trimmed gains recorded earlier in the week on Thursday during the Asian trading session.
The brent crude oil, against which Nigerian oil is priced, pulled back from $85.16 per barrel on Wednesday to $84.53 per barrel at 9:50 am Nigerian time on Thursday.
The uncertainty surrounding the highly contagious Omicron variant and its impact on fuel demand has shown by the U.S Energy Information Administration on Wednesday dragged on the global crude oil outlook.
The data released on Wednesday revealed that gasoline stockpiles rose by 8 million barrels last week, way higher than the 2.4 million barrel increase projected by experts. Suggesting that demand for the commodity is gradually waning in response to omicron.
“Gasoline demand was weaker-than-expected and still below pre-pandemic levels, and if this becomes a trend, oil won’t be able to continue to push higher,” OANDA analyst Edward Moya stated.
However, in a note to Investors King, Craig Erlam, a senior market analyst, UK & EMEA, OANDA, expected the impact of omicron to be short-lived. Libya’s inability to ramp up production after outage and OPEC plus continuous failure to meet production target are expected to support crude oil in the main term even with Kazakhstan expected to get back to pre-disruption levels in a few days.
“With omicron seen being less of a drag on growth and demand than feared. Combine this with short supply and there may be some room to run in the rally as restrictions are removed. Of course, Covid brings unpredictability and zero-covid policies of China and some others bring plenty of downside risk for prices,” he said.
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