Hopes for improved funding of the 2020 budget brightened yesterday as oil price hit $34.46 per barrel (as at 5pm) inching close to $35.
This is coming barely a week after the Federal Government approved a second review of its 2020 budget on the back of persistent fall in oil prices to adopt $25 as operational benchmark for the implementation of the budget.
The review had led to significant cut in both the capital and recurrent budget with huge uncertainty hanging over the wellbeing of the citizens
However, experts have argued that a sustained improvement in oil prices over the coming months would give the government the impetus for improving on its implementation of budget.
The Organisation of Petroleum Exporting Countries (OPEC) recently agreed to a deal to cut about 1.97 million barrels per day (bpd) in a strategy to shore up oil prices following a gradual easing of lockdown across several countries.
Ahead of the deal, world’s top exporter Saudi Arabia had announced it would cut an additional 1 million barrels per day in June, while OPEC+ wants to maintain existing oil cuts beyond June when the group is next due to meet again.
Similarly Kuwait and Saudi Arabia had agreed to halt oil production from the joint Al-Khafji field for one month, starting from June 1.
On Monday, oil prices had surged to two-month highs on growing signs of a rebound in oil demand, as easing of lockdowns spread worldwide.
At its peak in April, global lockdown measures affected around 3.9 billion people. But an estimated 3.7 billion people are now living in areas that are experiencing some version of a “reopening,” according to an estimate from Raymond James.
Data from China has stoked some bullish sentiments in oil markets, although there are some mixed signals. Traffic is back in many Chinese cities, and there are early signs that China’s oil demand may be rising back to pre-pandemic levels around 13 million barrels per day (mb/d).
Financial equities rejoiced, with the Dow Jones up roughly 3.5 percent during midday trading. WTI surged past $30 per barrel, up at one point on Monday by more than 10 percent.
Massive supply cuts went further in explaining the recent jump in prices. Oil traders view the implementation of the OPEC+ cuts favorably, with the 9.7 mb/d cuts phasing in swiftly. Part of the reason is that some oil producers, including Saudi Arabia, began having difficulty finding a home for its oil, as a portion of the cuts arguably became involuntary.
Meanwhile, PetroChina’s biggest refinery, a 410,000-bpd facility in Dalian, will resume operations in late June after a two-month overhaul, a statement by the oil company has said. This could mean an increase in Chinese oil imports from Russia because the Dalian facility is connected to the East Siberia-Pacific Ocean pipeline, and is the biggest processor of the ESPO blend.
The restart of the Dalian refinery will add to rising run rates in the world’s top oil importer, which would likely be taken as good news for demand, no matter where the supply comes from.
There are already reports that Chinese refiners are ramping up their processing rates. In April, these rose by 11 percent from March as the country began to emerge from the months-long lockdown, reaching 13.1 million bpd.