A Review of the Nigerian Energy Industry

Oil rises slightly in early trade

Oil rises
Oil rises

26 May 2015 – Crude prices were broadly unchanged in early trading on Tuesday, as firm demand supported and ample supply dragged, but analysts said there were signs that a recent rally was running out of steam.

Robust demand in Asia as well as due to the driving season in the US is being met by near record output, especially from Opec, although US production seems to have been peaked, at least temporarily.

Front-month Brent crude prices were up 6 cents to $65.58 per barrel early on Tuesday. US crude prices were up 16 cents at $59.88 a barrel.

Analysts said that big price spikes away from current levels were unlikely.

“Crude oil markets were supported by a reported decline in US production and crude oil inventories last week but prices failed to re-test the highs set earlier in the month,” ANZ bank said in a note on Tuesday.

London-based Timera Energy said that the recent oil rally had run out of steam because WTI prices were reaching levels at which producers could operate profitably.

“The fact that WTI prices are approaching LRMC (long-run marginal cost) benchmarks for new investment suggests to us that the recent rally in oil prices may not have much further to run,” London-based Timera Energy said.

“If this is correct then the US-dollar is likely to provide a useful indicator as to the next move lower in crude prices. If the US-dollar resumes its climb then oil prices will likely face strong headwinds,” they added.

The dollar hit a one-month high against a basket of major currencies on Tuesday after stronger-than-expected underlying US inflation bolstered the Federal Reserve’s case for an interest rate hike later this year. The rally followed a 7% fall between mid-March and mid-May.

Brent crude prices, by contrast, rallied more than 25% between March and mid-May but have moved largely sideways since.

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