Brent crude oil futures have dipped below $70 per barrel for the first time since December 2021, marking a significant shift in the oil market. The slump, driven by abundant supply, weakening demand, and widespread speculative selling, saw the global benchmark decline by 2.8 per cent.
U.S. supply disruptions caused by Tropical Storm Francine provided some support, with Brent crude futures falling by 48 cents, or 0.67 per cent, and U.S. West Texas Intermediate (WTI) crude dropping 42 cents, or 0.6 per cent, to $68.29. Despite a 1 per cent gain on Monday, oil prices gave up those gains on Tuesday due to ongoing concerns about a global oversupply and weakening demand forecasts.
Economic slowdowns in China and the U.S., the world’s top oil consumers, have intensified fears of a potential surplus in the coming year. Additionally, increasing production from non-OPEC countries further complicates the market.
The drop in crude oil prices adds more strain on the naira, which has recently depreciated to nearly N1,600 per USD. Despite the Central Bank of Nigeria’s (CBN) efforts to support the naira by selling USD to Bureau De Change (BDCs) at rates below the official exchange rate, the currency remains under pressure.
Last week, the CBN announced a sale of $20,000 to eligible BDCs at N1,584 per USD to boost liquidity and meet market demand.
The falling oil prices also pose a challenge for the federal government, which had set a benchmark crude oil price of $77 per barrel for its 2024 budget. Compounding the issue, Nigeria’s crude oil production has not met the 2024 budget target of 1.7 million barrels per day, and the country has struggled to fulfill its OPEC quota of 1.5 million barrels per day. Latest data from OPEC shows Nigeria’s average production increased slightly to 1.352 million barrels per day.
On a positive note, the decline in oil prices may lead to lower petrol prices, offering some relief to Nigerians who have recently faced steep increases.
The NNPC raised petrol prices from just over N600 per litre to N897 last week. The ongoing dispute between authorities and Dangote Refinery over petrol pricing has further worsened the situation, adding to the economic strain felt by Nigerians amidst one of the most severe cost-of-living crises in recent years.