Commodities Market Exports – Brent Crude Traded Bullish in the 2nd Half of August


Thursday, September 07, 2017 / 10:34 AM /FDC

Oil Prices

Brent crude has traded relatively bullish in the second half of August closing the 29th at $52.1pb. This is relatively higher than the closing value of $50.8pb at the end of the first half of August. This improvement is good news especially for countries such as Nigeria, whose main revenue source is from oil. In the case of Nigeria, the bullish price provides a revenue headroom of $7.60pb (Nigeria’s budget benchmark is $44.50pb).

In the US, declining drilling activity evidenced by a reduction in oil rigs is aiding the bullish note in the market (down 5 to 763 rigs in the week ending 20th August). Weather conditions in the US has also factored into the bullish sentiment in the market. The impact of tropical storm Harvey in Texas has led to the shutdown of refineries in the Gulf of Mexico. The net effect is expected to be negative for oil consumption and could threaten a rise in inventory.

The magnitude of refinery shutdowns, especially if refinery restarts take longer than production restarts, means that the potential for a Q4 crude oil inventory bulge is increased. This will have a dampening impact on oil prices, a risk to oil dependent economies such as Nigeria. It could also trigger a more aggressive approach to stabilize prices by OPEC ( i.e. include the likes of Nigeria in the output cuts).


Oil prices are likely to trade bullish for the remainder of the tropical storm. However, the oversupply in the oil market will dampen price gains and keep Brent crude trading within the range of $51$2pb.

Oil Production

Production recovered in July to 1.75mbpd, 0.4% higher than the previous level in June. This was expected following increased activity in Forcados and Bonga oil fields. It is anticipated however, that further increases in the production will be capped around 1.8mbpd. This is due to the commitment made by the Minister of State for Petroleum, Mr. Ibe Kachikwu, to adhere to quotas imposed by OPEC upon the rise of Nigeria’s production level.


Oil production is expected to increase further in August, albeit marginally. There is a strong likelihood that the OPEC might impose quotas on Nigeria if its production levels continue to soar.

Natural Gas

In the second half of August, gas prices reached an average of $2.9242/MMBtu, 2.12% higher than the average of $2.8635/MMbtu in the first half of August. The relatively bullish sentiment in the oil market as a result of the tropical storm Harvey is reinforcing marginal gains for gas.

Gas prices will move in tandem with weather developments in the US and the reopening of the golf coast refineries. Hence, we expect to see an uptick in price. 

Cocoa prices averaged $1,896/mt in the period August 16th – 28th, 5.25% lower relative to $2,001/mt in the first half of August. The bearish sentiment is predominantly driven by the oversupply of the commodity in the market. Although there were bouts of a price rally during the period because of technical buying, the commodity ultimately underperformed in the second half of August.

The cocoa glut will be the underlining factor in the consideration of cocoa investors. However, price gains are likely to occur in the event that the US dollar continues to depreciate in value.  


Wheat prices averaged $4.35/bushel in the period 16th – 29th August. This is 6.65% lower than the average of $4.66/bushel in the first half of August. The relatively bearish sentiment in the market was as a result of dampening demand for US wheat crop. Strong rains in Europe also reinforced the negative note in the market as this served to increase supply expectations.

Corn prices also underperformed in the second half of August relative to its price performance in the first half. Corn averaged $3.59/bushel in the period 16th – 29th August, 5.02% lower than its average of $3.78/bushel in the prior period. Corn futures are currently trading higher at $3.82/bushel (June 20). This decline occurs in spite of the USDA report that only 62% of corn crop was in good to excellent condition. This is likely attributable to weak investor confidence in production level which was expected to be much lower than it currently is.  

As US corn crop concerns fade, it is anticipated that the bearish sentiment in the market for grains will persist in the short run.  

Sugar prices averaged $0.1363/pound in the period 16th – 28th August, 1.65% lower than the average of $0.1386/pound in the first half of August. Sugar remains a target of investor dissatisfaction about the state of glut in the market.  

The outlook for sugar prices is weak as the market continues to suffer from high sugar supply at the detriment of prices. 

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