A few weeks ago, a two-month moving average of oil prices collapsed, turning the market to a greenish outlook. The figures, indeed, have been bullish in the past six months. Each trading day sends a firmer hope to oil-producing countries, whose economies have been sent spiraling by the ‘coro+oil’ crisis.
As news of economy re-opening spread in July, a moderate recovery kicked but retreated as concerns over the second wave of the COVID-19 pandemic grew. The market was short of clear direction, dominated by white noise, until the beginning of November, when the market assumed a definite positive form.
For one, Bonny Light, Nigeria’s benchmarked crude, has appreciated by 37 per cent between November 2, when it traded at $37.23, and last Friday, when it hit $51.74 in a race towards $67.02 it sold exactly a year ago.
As the economy caved in under global restricted movement in April, crude prices bottom-out. On April 22, Bonny Light sold for as low as $14.94, a price that was lower than the cost of lifting a barrel of crude at Niger Delta’s expensive oil wells. But the market has long climbed out of the April trough.
In July and August, it was similarly upbeat except that the post-October appreciation is steeper and more aggressive. Amid growing cases of COVID-19 infection cases, which some experts have labeled as bearish risks, the market still gained over two per cent in some trading sessions last week.
India, the second-most populous country, has announced its readiness to commence an ambitious “voluntary” vaccination soon. In what has been described as “the beginning of the end of a very painful time” in its history, the United States has also started administering the vaccines to healthcare workers, and it believes the process is the weapon it needs to end the tortuous war.
Though Eurosceptic attitude seems to have manifested in its debate about vaccination, the European Union (EU) is optimistic the “science of solidarity” will prevail against dreariness in these trying times, calling on its 27 members to get ready to work together in the vaccination process. The EU is approaching the logistics of procurement and distribution with the same strength of camaraderie with which it is channeling the fiscal stimulus.
Indeed, vaccination programmes have commenced in earnest. But so are resounding fresh concerns about the pandemic. The fear of death and incapacitation has continued to linger. From Europe to America and Asia to Africa, countries have imposed or are getting ready to impose what has been codenamed “lockdown two”.
In the middle of a COVID-19-triggered global economic hardship, a resurgent outbreak is bullying political leaders into another round of submission. And it is no longer a question of which country will capitulate to the new demand but who blinks first. And whether a country will opt for a partial or total lockdown is more of a matter of affordability than of need.
On the back of the surging curves of infection cases, the Organisation of the Petroleum Exporting Countries (OPEC) has lowered its oil demand forecast for 2021. It has cut its expectation for 2021 to 95.89 million barrels per day (bpd) from the 96.26 million bpd earlier projected.
Similarly, the International Energy Agency (IEA) relaxed its estimates for 2021 on account of looming uncertainty over efficacy, availability and distribution of COVID-19 vaccines. These projections expect oil demand to remain weak in the short-term.
But the market has continued to duck the prognosis of naysayers; it also remains unwary of the news around it. It thus raises the question as to whether the market has had its fair share of vaccination ahead of humanity. Is it selective of what it wants to respond to or simply stupid, to use the coinage of James Carville, President Bill Clinton’s campaign strategist?
But Bala Zakka, a Nigeria’s leading energy economist, says the economy is not stupid as supposed. He observes that the international oil market has moved on for good as it has realised that the world weathered the stormiest stage of the global pandemic when the economic lockdown was lifted in July.
“We all know that movement will not be fully restricted anymore like it happened previously. It was the restricted movement that collapsed the economy. Airlines were grounded. The movement of goods and services came to a halt. The global community wants to ensure that movement is not tightened so much that the economy comes to standstill. Countries want to manage the pandemic but with a reasonable degree of movement of goods and services. Hence, the oil prices are upbeat despite the fresh concerns,” Zakka says.
As long as transportation, which accounts for about 25 per cent of global energy consumption, continues to run, Zakka points out, crude demand will remain fairly afloat. He insists that the world is tirelessly wary of the sort of global shock of the last few months and would do all it can to prevent it.
According to him, the global community was caught napping earlier in the year when COVID-19 struck; hence the panic measures, including total lockdown, were taken to contain it. But he insists that the world “has learnt some lessons”, including the grave consequences of grounding the entire economy, which many economies are yet to get behind.
“That era has come and gone”, Zakka says. Despite the ongoing measures to contain the spread of the second wave, he is sure most China, Saudi Arabia, Brazil and many other countries in America and Europe will not shut down their refineries. He is only worried Nigeria’s domestic risks are debilitating as ever before, which he says cannot be addressed by a surge in global demand for crude.
“Those challenges were there before COVID-19 outbreak. For instance, the refineries were in comatose condition even without the COVID-19 outbreak. Are they going to start operating suddenly because global demand is looking bullish?” he asks.
Dr. Dauda Garba, a researcher at the Nigeria Extractive Industry Transparency Initiative (NEITI), describes the breakthrough in vaccination as the game-changer despite the rising curves of infection statistics in different parts of the world.
“We are no longer in a hopeless situation. Globally, countries are placing orders. The world has identified a solution. Yes, the COVID-19 is still very deadly. But there is no doubt that there is a solution in sight,” he stresses.
Previously, a school of thought suggested the world should allow the virus to run its course and allow humanity to develop its resistance. Garba seems to align with this. He suggests the pandemic has lost its capacity to shock the economy, as the world is seemingly getting acculturated to the virus.
There is a concern that growing optimism may mean different things to different producers. For instance, Nigeria’s fiscal framework remains continually sapped by the growing uncertainty about the Petroleum Industry Bill (PIB) passage and poor incentives.
For Garba, PIB passage may continue to be stalled by poor incentives. He suggests that interim measures should be taken to address the current market dynamics. Thereafter, he adds, the country could think of how it can activate a more sustainable framework when the economy stabilises.
The surge in prices may not be the product of market noise, after all. The trading optimism appears real. But Nigeria may now have to look inward to address the domestic headwinds that have stalled fiscal stability.
