By Lukman Otunuga
OPEC+ is set to meet this afternoon to determine output levels for May.
The cartel is widely expected to stick to its existing deal to gradually increase oil production. Any surprises or changes to the script could spark volatility across oil markets.
While the meeting is important, other events have snatched investors’ attention. Reports that the United States is set to adopt new steps to bring down high fuel prices hammered oil benchmarks on Thursday. On top of this, OPEC+ will no longer be using oil data from the International Energy Agency (EIA) amid a deepening dispute between the two institutions.
The White House is considering releasing up to 180 million barrels of oil from its strategic petroleum reserves (SPR) over a couple of months to tame oil bulls. Such an amount could help plug the gaping hole in the absence of Russian oil. Nevertheless, oil prices remain positive for the year with Brent gaining over 37% year-to-date. Indeed, high oil prices have been a welcome development to many oil-producing countries but some were not able to take full advantage. Nigeria’s OPEC quota is pegged at 1.8 million barrels per day but over the last fear years, the country has pumped between 1.4 to 1.6 million bpd according to Bloomberg. The terrible combination of poor infrastructure, under-investment, and theft among other negative factors have resulted in sub-optimal oil production. Should this trend persist, this could hit foreign exchange earnings and government revenues.
Oil benchmarks have shed over 5% today due to the latest developments and may extend losses due to the lockdowns in China. Earlier in the week, the world’s second-largest economy announced its biggest city-wide lockdown since the Covid outbreak started more than two years ago. Given how China is the world’s largest crude consumer, this development continues to weigh on oil markets. Expect oil to also remain sensitive to any news revolving around the Russia-Ukraine developments.
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Otunuga is a Senior Research Analyst at FXTM