Recovery in oil market extends to the third consecutive month

Recovery in oil market extends to the third consecutive month Data from the OPEC Monthly Oil Market Report for the month of July showed Brent was up 6% m/m to average U $43.22/b compared with US$40.77/b in June. We note that this is the third consecutive monthly increase in oil prices, following the significant dip in April when Brent fell to an 18-year low of US$19.33 on 21 April.

However, year to date, Brent remains substantially lower at an average price of US$42.27/b (down 35.8%) as at end of July when compared with the average of US$65.86/b in the same period in 2019. Notably, the report revealed that daily crude oil production in Nigeria (based on direct communication) declined by 2.7% m/m to 1.37 million barrels in July, as the country was required to make additional oil output cuts from July to September to compensate for initially exceeding its quota in May and June.

We believe the sustained uptick in brent prices in the month of July is reflective of the continued recovery in global demand for crude, supported by the relaxation of COVID-19 lockdown measures as well as OPEC+ production cuts which contributed to a gradual rebalancing of the global oil market. OPEC noted that oil prices were also buoyed by marginal improvements in refining activities in China, India and US, reduction in crude overhang alongside a weakening of the US dollar against a basket of other currencies, which provided support for increased demand for commodities traded in the US dollar.

With the scaling back of the OPEC+ cuts of 9.7 mbpd to 7.7 mbpd from August through the end of the year, we may begin to see some pressure on brent price. Although we expect recovery in global demand for crude to be supported by gains associated with the massive stimulus packages implemented by several countries, we note that downside risks to the recovery of oil prices such as the uncertainties around the global pandemic, subdued growth expectations and increased drilling activities in the U.S could limit upside in oil prices.



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