Nigeria Backs Saudi on Need to Curb Oil Market Volatility

Emmanuel Addeh in Abuja

Nigeria has backed Saudi Arabia’s call on the Organisation of Petroleum Exporting Countries (OPEC) to address the disconnect between paper and physical oil markets, which is causing some volatility in the international oil industry.

Several other OPEC+ countries have already expressed support for Saudi Arabian energy minister Prince Abdul-Aziz bin Salman, who said last week that OPEC+ has the flexibility and commitment to cut crude output levels if needed in response to the price disconnect.

 Physical (also known as cash) market prices are determined by the supply and demand for physical crude where traders buy oil from the producer and sell it to the refiner for immediate delivery.

Physical buyers and sellers have a direct pulse on the market and may feel immediately when it is well supplied, or not.

Futures prices, on the other hand, are determined by the supply and demand for crude futures positions. Futures markets provide traders with a means to bet on crude prices at certain points in the future, and also allows physical market participants to hedge their position and, therefore, minimise risk.

“A stable oil market benefits all — consumers, producers and investors alike. It is also a catalyst for global economic growth.

“As such, any measure required to ensure the stability of the oil market, whenever it is necessary, will always be comprehensively supported by Nigeria,” S&P Global quoted the Minister of State, Petroleum, Mr Timipre Sylva, as saying.

 Brent futures contract has seen an uptick since bin Salman’s comments and was trading at $100.3/b amid a United States stock draw and reduced optimism about an Iran nuclear deal.

A further statement by Sylva Sunday stated: “The current extreme volatility observed in the oil market calls for caution, and Nigeria, a world energy major, would work assiduously in ensuring a right and necessary path to stability.”?

The front-month Brent contract settled at $99.34/b last week, down $1.88 on the day. It has fallen back from a recent high of $120.83/b on June 8.