Lukman Otunuga,
Senior Research Analyst at FXTM
One of the most anticipated publications that influence Oil prices will be released this afternoon. Published once a year by OPEC, the World Oil Outlook is a big deal for Oil markets as it provides critical insight into the outlook for Oil in the period ahead. This year the WOO report will be of significant importance due to oil prices going sub-zero for the first time in history, and complicated supply/demand-side dynamics caused by COVID-19.
It is
widely known that Oil remains one of the biggest casualties from COVID-19. When
the world went on lockdown earlier in the year as coronavirus cases
skyrocketed, demand for Oil simply evaporated. Fast forward today, both WTI
Crude and Brent are still down over 30% year-to-date and remain pressured by
demand-side factors.
Given
the state of the global economy, it will be interesting to see whether OPEC’s
projections through the year 2045 adopt either a more hopeful or realistic
tone. It must be kept in mind that Oil not only remains pressured by
demand-side factors but supply-side themes in the form of non-compliance among
some of its members. Questions are already being raised whether the group will
extend the current level of cuts past December. The idea of more supply
returning to markets at a time where demand remains threatened by rising
coronavirus cases across the globe and renewed lockdown restrictions is bad
news for Oil bulls.
For Nigeria which remains heavily reliant on Oil sales for foreign exchange earnings and governments revenues, the prospects of lower Oil directly threaten the country’s outlook. Africa’s largest economy continues to nurse wounds inflicted by COVID-19, while the Central Bank of Nigeria has cut interest rates to stimulate economic growth. With inflation rising to its highest level in 29 months amid the coronavirus crises, Nigeria needs all the support it can get to ride through the current storm.
While
the country remains in an ongoing quest to break away from the chains of Oil
reliance, a recovery in Oil may boost foreign exchange reserves and government
earnings, consequently supporting the Naira and economic growth.
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