Bullish case for oil holds amid US-China trade war

A bull case can still be made for oil markets amid global trade tension created by the United States of America’s led trade war with China, Jeff Currie, head of commodities research at Goldman Sachs said Thursday, in an interview with CNBC.

“The bull case for oil and liquefied natural gas remains in place” Currie said.

An escalating trade war between the world’s two biggest economies has raised fears about slowing global growth that could cut demand for crude oil. Strong global economic growth and energy demand, low inventories and the failure of supply spikes to develop underpin Goldman’s view.

Nigeria might benefit from the bullish oil market if July level production is sustained. Nigeria’s crude exports rose in July, for the first time in four months as Shell lifted export restrictions on key Bonny Light grade, vessel tracking data obtained from the Bloomberg Terminal show.

Total July exports, excluding Akpo, rose to 1.64m barrels per day (b/d) versus revised 1.61m b/d in June. Akpo condensate shipments, rose to 123, 000 b/d versus 95, 000 b/d in June. Combined crude and condensate exports rose to 1.762m b/d from revised 1.688m b/d.

“This is a natural consequence of three factors, I will say. There is relative peace in the Niger-Delta, that is, militancy has abated. A corollary of this is that there has been no major pipeline damage or declaration of force majeure. The third factor is pure market dynamics. Oil prices hover around $70 per barrel and this is driving supply” Ayodele Oni, Energy Partner at Lagos-based Bloomfield Law Practice said in a phone interview, earlier.

However, with the risk of instability in the Niger Delta still present, and the damaging effect this entails on the region’s oil production, Nigeria adds more supply concerns to an oil market already saturated with instability. If Nigerian production decreases to 2016 levels, this development could compound with the above outlined risks, in addition to political risks in other producers to cause a substantial price increase.

Furthermore, Saudi Arabia and Russia’s spare capacity are diminishing following the 22nd June Organisation of Petroleum Exporting Countries (OPEC) production increase and this price hike becomes more likely as the supply-demand balance becomes tighter.

It is unlikely; however, that Nigeria will suffer the economic devastation it endured in 2016. That said, any decrease in production could have major effects on global oil markets and cause Nigeria to lose the hard-earned steps toward a full recovery.

Amid the rising crude exports, Nigeria’s oil and gas industry is fraught with uncertainties because of the political, legal and regulatory environment in which it operates.

Nigeria has passed a governance aspect of the Petroleum Industry Bill (PIB) which was broken into  four components, but the fiscal aspect which is the most important for guiding decisions on financial investments remain stuck in the national assembly over disagreements with terms.

This in turn has led to low investment appetite among investors and low oil reserves replacement ration in Nigeria, people with knowledge of the industry say.