Oil prices saw a decline of over 2% on Thursday due to unverified reports of a ceasefire between Israel and Hamas, coupled with a significant U.S. refinery shutting down due to a power outage.
Despite assertions from a Qatari official denying the existence of a ceasefire, it was reiterated that Hamas had responded positively to a ceasefire proposal put forth earlier in the week.
Brent crude futures fell by $1.85, equivalent to 2.5%, settling at $78.70 per barrel, while U.S. West Texas Intermediate crude futures decreased by $2.03, marking a 2.7% drop to $73.82.
In recent times, heightened tensions in the Middle East have led to an increase in oil prices. Persistent attacks by Yemen-based Houthi forces on vessels navigating the Red Sea have resulted in elevated costs and disturbances in global oil trading.
Additionally, the Houthi group has affirmed its intention to continue targeting U.S. and British warships, describing the actions as acts of self-defence.
As of November, OPEC+ has implemented voluntary oil production cuts amounting to 2.2 million barrels per day (bpd) geared towards shoring up oil prices.
Earlier trading saw an increase in oil prices following Federal Reserve Chair Jerome Powell’s announcement on Wednesday. Powell stated that interest rates had reached their peak and were expected to decline in the coming months. He also mentioned a downward trend in inflation and anticipated sustained economic growth.
Usually, lower interest rates and economic growth leads to increase in oil demand.
While the drop in oil prices is significant, it is still higher than the benchmark price of crude oil of $77.96 per barrel as projected in the 2024 budget. This means the drop does not threaten Nigeria’s revenue projections from the oil sector.
OPEC had cut Nigeria’s production quota for 2024 blow the budget’s production target. However, sources who spoke to Reuters stated that the cartel would meet later in March to contemplate extending these production cuts beyond the first quarter.