Uptick in oil price: Is a recovery in view?

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Brent futures are up 10% since last week, driven by the news of a vaccine following a decline in global oil demand since the outbreak of COVID. Also, the victory of former Vice President Joe Biden in the US presidential elections has signalled the possibility of a stimulus package to the markets.

Uptick in oil price: Is a recovery in view?
Uptick in oil price: Is a recovery in view? – www.brandspurng.com

Obviously, the market is anticipating that the President-elect would adopt a rather globalist agenda, a contrast to incumbent President’s protectionist stance vis-à-vis trade spats, which has led to the extension of OPEC’s supply cut agreement, weakened global demand, distorted trade flows and ultimately slowed global growth. Again, manufacturing sector readings are up in China, which has been able to contain the virus, as well as in Japan and the US.

The above presents a solid argument for a medium-term recovery in oil prices. However, the near-term outlook remains uncertain. Infections in Europe are rising, and deaths are nearly surpassing the peak of the initial lockdown phase. France, U K and Germany, which are major energy consumers, have now enforced second lockdowns to varying degrees. OPEC + will meet at the end of November to discuss the possibility of ramping up supply. The Vienna based cartel earlier in Q3-2020 revised its demand forecasts for 2021 by 80,000 BPD.

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The FGN would be watching with interest to see what the forecasts hold for 2021. Oil receipts account for 40% of Nigeria’s dollar inflows, 80% of exports. Foreign Direct Investments, Foreign Portfolio Investments and banking loan-book remain considerably exposed to the sector. It is imperative that in the short-term, higher prices will spur growth and boost recovery.

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