Global oil benchmark, Brent crude, rose to its highest level so far this month on Tuesday, as tension in the Middle East and the possibility of further falls in Venezuelan output helped offset the negative impact of growing United States’ crude production.
Brent, against which Nigeria’s crude oil is priced, increased by $1.75 to $67.80 per barrel as of 5:40pm Nigerian time, while the United States’ West Texas Intermediate stood at $63.78 per barrel.
The rise in oil prices means accretion to the Excess Crude Account, into which the country saves the difference between the market price of oil and the budget benchmark to provide a cushion when oil prices fall or extra cash is needed for spending on infrastructure.
“The move today is more to do with geopolitical tensions than underlying fundamentals, but I don’t expect that to last,” PVM Oil Associates Strategist, Tamas Varga, was quoted by Reuters as saying.
Saudi Arabia called the 2015 nuclear deal between Iran and world powers a “flawed agreement” on Monday, on the eve of a meeting between the Saudi crown prince and US President Donald Trump. Both are highly critical of Iran.
Trump has threatened to withdraw the US from the accord between Tehran and six world powers, raising the prospect of new sanctions that could hurt Iran’s oil industry.
“Tensions between Saudi Arabia and Iran gave prices some support,” the Director of Energy Consultancy, Trifecta, Sukrit Vijayakar, said in a note.
Worries about falling production in Venezuela, whose output has been halved since 2005 to below two million barrels per day due to an economic crisis, also supported oil markets.
The International Energy Agency said last week that Venezuela was “vulnerable to an accelerated decline” and said such a disruption could tip global markets into deficit.
PVM’s Varga said Venezuela was a potential source of supply disruption, adding that the bigger challenge for the Organisation of Petroleum Exporting Countries and its allies was ensuring that their efforts to balance the market through output curbs was not undermined by rising production elsewhere.