Oil Closes Higher On Supply Constrains, Tensions In Middle East

Taiwo Adekeye, FMVA

February 12, 2024

Oil prices closed higher on Friday, increased about 6% on a week-on-week basis, driven by escalating concerns over Middle East supply and heightened by ongoing outages affecting refined products markets.  However, Ukraine launched drone attacks against two oil refineries in southern Russia on Friday, resulting into a fire outbreak reducing production of oil at the oil producing region. Brent crude futures was up by 0.7% closing at $82.19 a barrel while the U.S. West Texas Intermediate crude futures settled up by 0.8% to close at $76.84 a barrel.

South Africa:  The Rand steady as focus tilts to government’s budget

The Rand was a bit changed making no market impact on Friday, after President Cyril Ramaphosa revealed his plans to address the country’s major challenges in his annual State of the Nation Address (SONA) on Thursday evening.  However, traders and investors are anticipating the budget speech by the finance minister next week (Feb 21) which will be unveiling   the government’s spending priorities, revenue collection measures and updated economic forecasts. The Rand traded at 18.9375 against the USD, up 0.2% in comparison with its previous close.

Nigeria: CBN to impose penalties on false forex claims

The apex bank has vowed to punish entities involved with fraudulent foreign exchange transactions after an audit significantly reduced and revealed the backlog of payment claims to a more manageable level. A forensic audit of the $7 billion in long overdue forex backlogs, which the bank has been trying to address, unveiled irregularities affecting transactions worth $2.4 billion. The irregularities spanned from missing paperwork to non-existing persons and beneficiaries receiving unauthorized foreign exchange allocations. The giant of Africa with the largest economy is experiencing a crippling dollar shortage making its currency to record lows in recent weeks

Zimbabwe: Zimbabwe strategizing measures to stabilize its currency

The Zimbabwean dollar has fallen about 40% since the beginning of this year, caused by increasing foreign-currency demand from civil servants being paid December bonuses and weaker commodity prices jeopardizing inflows. This has caused inflation to accelerate beyond measure in an economy still battered by memories of hyperinflation under longtime leader Robert Mugabe. However, the presidents and its apex bank authorities are looking forward to introduce a structured currency without explaining how it would work. The government relaunched a local currency in 2019 after a decade of dollarization, but it rapidly lost value and authorities reauthorized the use of foreign currencies in domestic transactions soon after.

Russia: Refinery damage raises doubt on OPEC+ supply reduction commitments

Refinery damage caused by drone attacks and technical outages has made Russia to export more crude than its agreement for February. This situation has the potential to weaken its commitment to reduce sales as per the OPEC+ agreement.  The country has agreed with OPEC+ to cap its crude oil production at 9.5 million barrels per day (bpd) while it also voluntarily reduced exports of crude oil and fuel by 300,000 bpd and 200,000 bpd of fuel respectively from the average May-June level. It will be hard for Russia to stick to this agreement as amounts of unrefined crude accumulate and Russia’s ability to refine oil remains limited.

India: Rupee declines due to dollar demand from importers resulting in marginal weekly decline

The Rupee declined on Friday, due to dollar demand from importers, not excluding local oil companies as Rupee closed at 83.0350 against the U.S. dollar, weaker by 0.1% compared with its close at 82.9550 in the previous session. Elevated oil prices also impacted the rupee on Friday as Brent crude oil futures rose to a peak of $81.84 after climbing 3% on Thursday amid concerns of a broadening conflict in the Middle East. Despite the pressure on the local currency, dollar sales from foreign banks helped cap the rupee’s decline during the week. However, Investors will monitor inflation data scheduled for release in both India and the U.S. this week, with figures from US expected to be a more influential factor for the rupee.