Indications are emerging that the recent ceasefire declared by the Niger Delta Avengers may not be all good news for the country’s economy. This is because the cease fire has increased the downward pressure on the price of crude oil in the international market.
An indication of this was observed in the reduction of price of oil in the international market after the declaration of the cease fire. This was against the bullish trend that had seen the product enjoy its longest run of gains in 4 years. Bloomberg reports that Futures dropped by 3% after a 16% gain yesterday.
The recent upward trend in the price of crude oil in the international market was fueled by speculations that OPEC countries, in a meeting organized for next month, would agree on an output freeze in a rally to boost oil prices.
However, the news that the Niger Delta Avengers have ceased all attacks against multinational oil companies means that the country would increase its crude oil production and hence exports.
Coupled with Iraq’s readiness to increase exports by about 150,000 barrels daily, the news of the cease fire has served to increase fears among experts that an oversupply of the product will continue and hence result in a downward turn in oil prices.
‘OPEC showed their cards. You cannot have higher prices and ramp up production at the same time’ Bloomberg quotes Phil Streble, a senior market strategist at RJO Futures as saying.
What that means is that due to lower oil prices, an increased production of crude oil by the country might not necessarily translate into a big boost in revenue generated as the price per barrel goes down. That is certainly not good news for a country whose economy hinges on oil revenue.
Parts of this article originally appeared in Bloomberg