Oil prices tumbled Tuesday, with Brent slumping below $50 on news of increased production from Nigeria following the repair of infrastructure damaged in militant attacks and a return of oversupply fears.
Bloomberg News reported Tuesday that Africa’s biggest oil producer pumped an average 1.53 million barrels a day last month, up around 90,000 a day from May.
The Nigerian state minister for petroleum resources, Emmanuel Kachikwu, said last month that a ceasefire with rebel forces had allowed the government to repair damaged oil pipelines, Bloomberg reported.
“Crude oil prices are back well below $50 after Nigerian production was ramped up afresh, tipping the balance of drivers further towards the bearish,” said Michael van Dulken and Augustin Eden at Accendo Markets.
At around 1600 GMT, US benchmark West Texas Intermediate for August delivery was down $2.16, or 4.4 percent, to $46.83 and Brent crude for September shed $2.05, or 4.1 percent, to $48.05 a barrel.
The strengthening dollar also hit oil prices. When other currencies fall against the dollar, demand from buyers in these currencies tend to fall as crude is priced in oil.
Britain’s vote to leave the European Union has also dented expectations for global growth which will have implications on the demand for oil.
“As global bond markets start to price in the prospect of a global slowdown oil prices have started to come back off their recent highs,” said Michael Hewson, chief market analyst at CMC Markets.
He noted that the recent rebound in oil prices to levels above $50 per barrel has encouraged some producers to ramp up production, which could see concerns about overproduction return.
Recent militant attacks have also not caused oil prices to spike higher on fears for interruptions to supplies.
“Terrorist attacks in Iraq and Saudi Arabia over the weekend and yesterday failed to lend support to oil prices” due to concerns over the state of the global economy and demand for oil, noted analyst Tamas Varga at oil brokerage PVM.
British bank Barclays said oil prices will also remain under pressure from the impact of Britain’s vote to leave the European Union, which is yet to fully unfold.
“The dire warnings about the effect on global financial markets and risk appetite from a UK vote to leave the EU are yet to manifest themselves in commodity markets, which in general have performed robustly over the past week,” it said in a market analysis.
“Whether this proves to be the calm before the storm depends on the extent of negative contagion,” it added.
“The deterioration in the global economic outlook, financial market uncertainty and potential ripple effects on key areas of oil demand growth are likely to exacerbate already-lacklustre industrial demand growth trends.”