Crude oil in the Organisation of Petroleum Exporting Countries reference basket dropped for the second consecutive month in April, shedding 48 per cent of its worth, as cargoes of unsold oil continued to accumulate, OPEC has said.
In its just released Monthly Oil Market Report for May 2020, which was obtained in Abuja on Thursday, OPEC explained that oil in its reference basket crashed in price to the lowest monthly point since December 2001.
Nigeria is a strong member of OPEC. However, Brent, the crude against which Nigeria’s oil is priced, moved up marginally in price on Thursday, 14th of May 2020. It traded for $30.40 per barrel as at 9:13am Central Standard Time, after gaining $1.21 when compared to the previous day’s price. Explaining movements in crude oil price, OPEC said, “The OPEC Reference Basket dropped by $16.26, or 48.0 per cent, month-on-month, to stand at $17.66/barrel, the lowest monthly point since December 2001.
“Crude oil spot prices recorded a second sharp monthly drop in April amid an ongoing rise in the oil surplus in the spot market and accumulating unsold cargoes, as refiners heavily cut runs due to plunging oil demand and rising global oil stocks, both onshore and offshore.” The organisation said crude oil futures prices extended sharp declines in April amid a strong contraction in both the global economy and oil demand due to the impact of the COVID-19 pandemic.
It stated that Brent declined by $7.10, or 21 per cent, to average $26.63/barrel, adding that the commodity was $20.94, or 31.8 per cent lower and averaged $44.84/barrel. It observed that speculators had bet on a recovery in prices after Brent hit 18-year lows.
OPEC stated that the collapse of oil demand, refinery run cuts and rising global oil supply resulted in a large surplus in the oil market along with massive oil stock builds, both onshore and offshore. “However, the contango structure flattened in late April and early May on signs of a tender recovery in market fundamentals,” it stated.
It said crude oil sellers continued to heavily discount their unsold crude oil cargoes for April and May delivery to find buyers, which resulted in swift declines in crude differentials in all regions. The organisation stated that crude spot prices in the Atlantic Basin were under heavy pressure due to a sharp decline in crude demand for May loadings, while crude availability continued to increase, resulting in a significant rise in floating oil storage.
It noted that growing demand for floating storage pushed freight rates firmly higher, which added downward pressure to spot prices and crude oil differentials and limited arbitrage to Asian markets.