Oil prices surged to their highest levels in two months on Tuesday, driven by a combination of rising summer demand and potential supply disruptions due to Hurricane Beryl.

Brent crude oil, against which Nigerian oil is priced, climbed 70 cents, or 0.81% to $87.30 a barrel.

Similarly, U.S. West Texas Intermediate (WTI) crude increased by 68 cents, or 0.82%, to $84.06 a barrel, its highest since April 26.

Both benchmarks had already gained approximately 2% in the previous session, signaling a robust upward trend.

The primary catalyst for this surge is the anticipated rise in U.S. gasoline demand as the summer travel season intensifies, particularly with the Independence Day holiday this week.

The American Automobile Association (AAA) forecasts a 5.2% increase in travel during the holiday period compared to 2023, with car travel expected to rise by 4.8%.

In addition to the seasonal demand boost, oil prices are being supported by a rising geopolitical risk premium associated with Middle East tensions.

This, coupled with signs of subsiding inflation in the United States, has rekindled hopes of potential interest rate cuts by the Federal Reserve.

Recent U.S. data has bolstered the market view that the Federal Reserve might proceed with two quarter-point interest rate cuts later this year.

Further compounding the supply concerns is Hurricane Beryl, which struck the Caribbean as a Category 4 storm on Monday.

The hurricane’s trajectory towards Mexico raises fears of disruptions to U.S. refining and offshore production.

“A dangerous hurricane in the Caribbean Sea is expected to hit Mexico, intensifying concerns regarding the supply side of the equation,” said Charalampos Pissouros, senior investment analyst at brokerage XM.

Market analysts are closely monitoring the situation, particularly as lower crude exports from OPEC and Russia coincide with the peak summer refinery runs, contributing to a tighter-than-expected market.

Claudio Galimberti of Rystad Energy noted, “Lower crude exports from OPEC and Russia, just as refinery runs ramp up for the summer peak, are contributing to a tighter market and prices are reacting accordingly.”

Despite these bullish factors, some caution remains due to signs of lower-than-expected demand growth. Data indicates that first-half crude imports to Asia, the world’s largest oil-consuming region, were lower than in the same period last year.

However, the prevailing high geopolitical risk premium continues to lend support to oil prices.

As markets navigate these dynamics, industry stakeholders are advised to stay vigilant. The interplay of seasonal demand, geopolitical tensions, and natural disasters underscores the volatile nature of the oil market.

The coming weeks will be critical in determining whether the current price rally is sustainable or if further adjustments will be necessary.

Nigeria is set to reactivate eight major idle oil fields with the potential to increase the nation’s crude oil production by 900,000 barrels per day (bpd).

This initiative, if successful, could provide a much-needed boost to the economy of Africa’s largest oil producer, which has been grappling with declining investments and production inefficiencies.

Despite sitting atop 36 billion barrels of crude oil reserves and 206 trillion cubic feet of proven gas reserves, Nigeria’s oil sector has struggled in recent years.

Many lucrative oil and gas projects have lain dormant, jeopardizing the country’s long-standing goal of increasing reserves to 40 billion barrels.

Reactivating Major Projects

The fields slated for reactivation include high-capacity projects such as Zabazaba (150,000 bpd), Shell’s Bonga South West (225,000 bpd), Bonga North (100,000 bpd), Chevron’s Nsiko (100,000 bpd), ExxonMobil’s Bosi (140,000 bpd), Satellite Field development phase (80,000 bpd), and Ude (110,000 bpd).

These fields, once operational, could significantly bolster Nigeria’s oil production, which is crucial for the national budget.

Economic Potential

Oil experts believe that optimizing these idle assets is essential for Nigeria’s path to economic prosperity.

“Efficient management and investment in these projects could transform Nigeria’s energy landscape,” said Austin Avuru, Executive Chairman and Founder of AA Holdings Limited. “We need an annual investment of $25 billion over the next decade to stabilize production at 2 million barrels per day.”

This ambitious plan, however, hinges on disciplined planning, comprehensive economic reforms, and consistent government policies that can attract and sustain investor confidence.

The recently passed Petroleum Industry Act (PIA) was expected to be a game-changer, but its implementation has been marred by bureaucratic obstacles and corruption.

Overcoming Challenges

“The projected benefits of the PIA have not materialized due to poor implementation,” noted a senior industry source. “Regulatory bottlenecks and demands for bribes continue to impede progress.”

The Nigerian National Petroleum Company (NNPC) Ltd has faced criticism for its role in the sector’s underperformance.

Critics argue that the state-owned company has not focused enough on improving technical efficiency, which is crucial for maximizing output from existing assets.

A New Hope

President Bola Tinubu’s administration has shown a renewed commitment to addressing these issues.

Last year, the government secured a $3.2 billion loan from the African Export-Import Bank (Afrexim) to support economic reforms.

This, coupled with Tinubu’s assurance to resolve investment-related issues, has raised hopes for a turnaround.

“We are determined to make Nigeria a haven for large-scale investment in key sectors,” Tinubu assured a delegation from Shell last December.

Industry Optimism

Oil industry stakeholders are cautiously optimistic. “The resolution of legal disputes surrounding assets like OPL 245 is a positive step,” said Ayodele Oni, energy lawyer and partner at Bloomfield Law Firm. “It signals to investors that Nigeria is serious about creating a stable and attractive investment climate.”

As Nigeria prepares to bring these dormant fields back online, the world will be watching closely. Successful reactivation could not only stabilize Nigeria’s oil production but also set the stage for sustained economic growth and development.

For now, the potential surge in energy output from these fields represents a beacon of hope for the country’s struggling oil sector.

During the Asian trading session on Friday, oil prices sustained their upward increase to set the stage for a third consecutive weekly gain.

This rise is fueled by growing optimism that the U.S. Federal Reserve will soon begin cutting interest rates and improving refining margins.

Brent crude oil, against which Nigerian oil is priced, saw an increase of 48 cents, or 0.56% to settle at $86.87 a barrel.

The U.S. West Texas Intermediate (WTI) crude oil gained 52 cents, or 0.64% to settle at $82.26 a barrel.

This positive trend persists despite unexpected increases in U.S. crude inventories, which had been anticipated to decline during the peak summer demand period.

“Crude oil edged higher despite weak near-term fundamentals,” commented ANZ analysts. They attributed the price rise to a broader market risk-on tone, triggered by data signaling further weaknesses in the U.S. labor market.

The market’s optimism has been further buoyed by rising expectations of an imminent Federal Reserve easing cycle.

Traders are now pricing in a 64% chance of a rate cut by September, up from 50% just a month ago, according to the CME FedWatch tool.

Lower interest rates could potentially stimulate oil demand by reducing borrowing costs for consumers.

The recovery in physical refining margins has also supported the oil markets. The Singapore complex refining margins have averaged $1 higher in June compared to May, standing at around $3.60 a barrel.

Ivan Mathews, head of Asia refining at FGE, said, “Heading to Q3, we expect refining margins to remain around current levels. We anticipate gasoline prices to continue rising through August, offset by easing diesel cracks amid lengthening East of Suez balances.”

Despite the overall positive sentiment, market analysts are cautious about several downside risks. Fluctuations in the U.S. dollar, which is at a two-month high, and political uncertainty in France could impact oil demand.

Kelvin Wong, a senior market analyst at OANDA, highlighted, “The downside risk factor at play is related to USD volatility, bearing in mind the U.S. core PCE inflation data due later today.”

Wong also noted that oil prices might face short-term profit-taking at the start of next week if the first-round results of the French legislative election on June 30 show lower public support for a far-right group advocating a halt to green energy development.