Oil Nosedives on US Dollar Rally, Nigerian Oil Output Recovery
WASHINGTON (DTN) -- New York Mercantile Exchange oil futures and Brent crude traded on the Intercontinental Exchange settled the first trading session of 2023 sharply lower, pressuring West Texas Intermediate below $77 per barrel (bbl). The losses came on the back of a rallying U.S. dollar and reports suggesting the Organization of the Petroleum Exporting Countries once again raised oil production in December amid recoveries in Nigerian and Iraqi output.
OPEC boosted oil production by 150,000 barrels per day (bpd) last month to 29.14 million bpd, according to industry surveys, with Nigeria -- Africa's second-largest oil producer, recovering a chunk of its previously lost crude output. In December, Nigeria pumped 1.4 million bpd, up from 1.1 million bpd seen just three months ago. Even with those gains, Nigeria's oil production is about half of what it was a decade ago amid internal strife.
Nigeria's government has repeatedly called for an end to violence and theft along the oil-producing Niger River delta region. The government of strong-man Muhammadu Buhari has reportedly hired loyal warlords to secure safe passage of oil and personnel in the region. State-owned Nigerian National Petroleum Co. plans to build on the progress, according to a report in Lagos-based newspaper, aiming to raise output to its pre-pandemic high of 1.9 million bpd. NNPC started to drill for oil and gas at the field outside of Niger Delta for the first time in November, seeking to produce an additional 1 million bpd by 2025.
OPEC and its allies, a 23-nation bloc known as OPEC+, agreed to collectively reduce output by 2 million bpd to 41.856 million bpd beginning in November, and then hold production steady at that rate for all of 2023. However, questions remain whether OPEC+ would raise production again as China reopens its economy in 2023 and some members, namely Nigeria, raises output unilaterally.
Oil complex came under selling pressure earlier in the session after China reported its manufacturing and service sectors of the economy fell deeper into contraction in December to the lowest level since February 2020. The services index in particular was hard hit amid an abrupt end to a long-held policy of zero-COVID as people pulled back on mobility and businesses closed down. Last month, China's metropolitan areas looked more like ghost towns rather than megacities for tens of millions of its residents.
However, that might be changing. New high-frequency data shows mobility gradually recovering from a mid-December slump in Shanghai, Beijing, and Zhengzhou among other regions. Bloomberg data showed subway use in all major cities has risen steadily over the past 14 days, spurring optimism that COVID infections might have peaked in some areas. Market observers believe they'll have a better understanding of how the surge in China's COVID cases will play out following the Chinese New Year on Jan. 22, usually a busy time when Chinese travel to celebrate with family.
China's economy is still expected to grow robustly in 2023, with the Energy Information Administration projecting a 600,000 bpd or 4% annual increase in oil demand to 15.76 million bpd next year.
Further weighing on the oil complex at the start of the new year is a strengthening U.S. dollar index which settled 1% stronger against a basket of foreign currencies at 104.312, while the U.S. stock market reversed earlier gains to finish the session with losses. Tuesday's move lower in financial markets came on the back of dire forecasts from International Monetary Fund Director Kristina Georgieva who warned over the weekend that the global economy faces "a tough year ahead, tougher than the year we leave behind."
"We expect one-third of the world economy to be in recession," Georgieva told CBS's "Face the Nation." "Why? Because the three big economies -- United States, European Union, and China -- are all slowing down simultaneously."
The IMF already warned in October that more than a third of the global economy will contract and that there is a 25% chance of global GDP growing by less than 2% in 2023, which it defines as a global recession.
At settlement, West Texas Intermediate for February delivery fell below $77 per bbl to $76.93, down $3.33 per bbl on the session, and Brent March futures declined $3.81 to $82.10 per bbl. NYMEX RBOB February contract dropped $0.1171 to $2.3612 per gallon, and front-month ULSD futures were down $0.2085 to $3.0865 per gallon.
Liubov Georges can be reached at email@example.com