Oil prices faced a setback on Thursday as the U.S. Federal Reserve’s decision to maintain interest rates dampened investor sentiment.

The Federal Reserve’s announcement on Wednesday indicated a reluctance to initiate an interest rate cut, pushing expectations for policy easing possibly as late as December. This unexpected stance rattled markets already grappling with inflationary pressures and economic uncertainty.

Brent crude, the international benchmark for Nigerian crude oil, saw a drop of 43 cents, or 0.5% to $82.17 a barrel, reflecting cautious investor response to the Fed’s cautious approach.

Similarly, West Texas Intermediate (WTI) crude oil also slipped by 46 cents, or 0.6% to settle at $78.04 per barrel.

Tamas Varga, an analyst at PVM Oil, commented on the Fed’s decision, stating, “In the Fed’s view, this is the price that needs to be paid to achieve a soft landing and avoid recession beyond doubt.”

The central bank’s move to hold rates steady is seen as a measure to balance economic growth and inflation containment.

The Energy Information Administration’s latest data release further exacerbated market concerns, revealing a significant increase in U.S. crude stockpiles, primarily driven by higher imports.

Fuel inventories also exceeded expectations, compounding worries about oversupply in the oil market.

Adding to the downward pressure on oil prices, the International Energy Agency (IEA) issued a bearish report highlighting concerns over potential excess supply in the near future.

The combination of these factors weighed heavily on investor sentiment, contributing to the decline in oil prices observed throughout the trading session.

Meanwhile, geopolitical tensions in the Middle East continued to influence market dynamics, with reports of Iran-allied Houthi militants claiming responsibility for recent attacks on international shipping near Yemen’s Red Sea port of Hodeidah.

These incidents underscored ongoing concerns about potential disruptions to oil supply routes in the region.

As markets digest the Fed’s cautious stance and monitor developments in global economic indicators and geopolitical tensions, oil prices are expected to remain volatile in the near term.

Analysts suggest that future price movements will hinge significantly on economic data releases, policy decisions by major central banks, and developments in geopolitical hotspots affecting oil supply routes.

Nigeria’s once-thriving oil industry is facing a significant challenge as traditional buyers increasingly turn to more affordable alternatives from the United States and Russia.

This shift has led to France emerging as the leading buyer of Nigerian crude, marking a significant change in the global oil market dynamics.

Top Nigerian crude grades like Bonny Light, Forcados, and Brass have long been favored by refineries in Europe and Asia due to their low sulfur content.

However, the country’s primary customers, including India and China, are now opting for cheaper US and Russian oil.

This trend poses a substantial risk to Nigeria, which relies on oil exports for more than half of its foreign exchange earnings.

Data from BusinessDay reveals a stark decline in India’s purchase of Nigerian crude. In the first quarter of 2024, India bought N1.3 trillion worth of Nigerian oil, a significant drop from the average of N2 trillion purchased between 2018 and 2021.

“Buyers are increasingly turning to cheaper alternatives, raising concerns for the country’s revenue stream,” said Aisha Mohammed, a senior energy analyst at the Lagos-based Centre for Development Studies.

The latest tanker-tracking data monitored by Bloomberg indicates that India is buying more American crude oil as Russian energy flows dwindle amid sanctions.

India’s state-owned oil refiners and leading private companies have increased their imports of US crude, reaching nearly seven million barrels of April-loading US oil. This shift is the largest monthly inflow since last May.

Russian crude flows to India surged following the invasion of Ukraine, making Russia the biggest supplier to the South Asian nation.

However, tighter US sanctions have stranded Russian cargoes, narrowing discounts, and prompting India to ramp up purchases from Saudi Arabia.

“Given the issues faced with importing Sokol in Russia, it’s no surprise that Indian refineries are turning toward US WTI Midland as their light-sweet alternative,” explained Dylan Sim, an analyst at industry consultant FGE.

As a result, France has overtaken the Netherlands to become the biggest buyer of Nigerian crude oil, purchasing products worth N2.5 trillion in the first quarter of 2024.

Spain and India occupied second and fourth positions, with imports valued at N1.72 trillion and N1.3 trillion respectively, as of March 2024.

The sluggish pace of sales for Nigeria’s May supplies highlights the market’s shifting dynamics. Findings show that about 10 cargoes of Nigerian crude for May loading were still available for purchase, indicating a reduced demand.

Rival suppliers such as Azeri Light and West Texas Intermediate have also seen price weaknesses, impacting Nigerian crude demand.

“We’ve got much weaker margins, so Nigeria’s crude demand is taking a hit,” noted James Davis, director of short-term oil market research at FGE.

Sellers seeking premiums over the Dated Brent benchmark have found the European market less receptive, according to Energy Aspects Ltd.

“May cargoes were at a premium that didn’t work that well into Europe, but lower offers have seen volumes move,” said Christopher Haines, EA global crude analyst. “Stronger forward diesel pricing is also helping.”

Some Nigerian grades are being priced more competitively, including Qua Iboe to Asia and Bonny Light to the Mediterranean or East, with the overhang slowly reducing, according to Sparta Commodities.

However, the overall reduced demand could lead to a decrease in revenue from oil exports, a major source of income for the Nigerian government.

“Reduced demand could lead to a decrease in revenue from oil exports, a major source of income for the Nigerian government,” warned Charles Ogbeide, an energy analyst with a Lagos-based investment bank.

Oil prices steadied on Monday with Brent crude trading near $80 per barrel and West Texas Intermediate (WTI) hovering around $76.

This stabilization follows a 2.5% decline last week, spurred by OPEC+’s announcement to increase supply starting from the third quarter.

The market is now keenly awaiting a series of industry reports and a crucial decision from the Federal Reserve on interest rates.

Last week’s drop in oil prices was exacerbated by algorithmic trading, which intensified the market’s reaction to OPEC+’s decision.

The alliance’s move to restore supply comes after months of production cuts aimed at stabilizing prices amid fluctuating demand.

Traders are now looking ahead to monthly reports from OPEC and the International Energy Agency (IEA), scheduled for Tuesday and Wednesday, respectively.

These reports are expected to provide valuable insights into the current health and future outlook of the oil sector.

Also, the Federal Reserve’s mid-week announcement on interest rates is being closely watched.

Strong economic data and persistently high inflation have tempered expectations that the Fed will soon pivot to lower borrowing costs, a shift that could significantly impact market dynamics.

The oil market has been on a downward trend since early April, driven by a weakening demand outlook.

This bearish sentiment is reflected in the positioning of money managers, who have significantly reduced their net long positions on Brent crude to the least bullish levels in a decade, according to data going back to 2011. Similarly, net long positions for the US benchmark WTI have also declined.

Despite the overall downturn, certain segments of the refined products market, such as jet fuel, are showing signs of strength.

A resurgence in air travel, approaching pre-COVID-19 levels, is driving increased demand for jet fuel, offering a glimmer of optimism within the broader market.

Geopolitical factors continue to play a role in the oil market’s volatility. Tensions remain high in the Middle East, where an Israeli operation in Gaza resulted in the release of four hostages but also led to the deaths of over 200 Palestinians, according to the Hamas-run government media office.

Meanwhile, in Europe, far-right parties made significant gains in the European Parliament elections, adding another layer of uncertainty to the geopolitical landscape.

Trading volumes are expected to be thin during Asian hours due to holidays in mainland China and Hong Kong, which could contribute to lower liquidity and potential price swings.

As the market navigates these multifaceted challenges, the upcoming reports from OPEC and the IEA, along with the Federal Reserve’s decision, will be pivotal in shaping the near-term outlook for oil prices.

For now, traders and analysts alike will be watching closely to gauge the future direction of the market.