Global oil prices traded above $50 per barrel for the first time since March after the release of COVID-19 vaccines offset a huge rise in US crude inventories that showed there was still ample supply available.
Brent, used to price two-thirds of the world’s oil, rose over 3.4 percent on Thursday to $50.14 per barrel at 4pm local time, data from Bloomberg showed.
Although most oil traders admitted that the new normal is still some way off, hopes that the Covid-19 vaccine will revive the global economy, coupled with the Organisation of Petroleum Exporting Countries (OPEC)+ decision to delay bringing back much of the extra 2 million bpd of oil planned for January, are supporting prices for now.
Britain began vaccinations this week and they could start as soon as this weekend in the United States. Canada on Wednesday approved its first vaccine and said initial shots would be delivered starting next week.
Demand in key hubs like India and China has also given the bulls something to latch on to. India appeared to turn the corner in October 2020, with oil products demand up 2.5 percent year-on-year, ending seven straight months of decline.
“The latest set of data has exceeded any bearish expectations,” Tamas Varga of oil broker PVM told Reuters. “The stubbornness of oil bulls and their confidence in the positive economic impact of the vaccine roll-out are truly remarkable.”
Concern over an attack on an Iraqi oilfield also lent support. Two wells at a small field were set ablaze by explosives on Wednesday, but overall production from the field was not affected.
China, meanwhile, has been carrying the world’s oil consumption in recent months and crude imports in November bounced back from a six-month low the previous month.
Oil has recovered from historic lows reached in April when the pandemic hammered demand, helped by a record supply-cut deal by the OPEC and allies, known as OPEC+.
The current trend in the global oil market is expected to provide some level of stability to Nigeria’s already fragile economy with oil exports contributing about 90 percent of the country’s foreign exchange earnings.
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While the higher oil price translates to higher revenue, it also means if the Federal Government’s pricing template is anything to go by, Nigerians may have to brace for an increase in the pump price of fuel in December.
This is going to add more financial burden to Nigerians who are already complaining of the high cost of petroleum products, which has negatively impacted the price of goods and services.
For Nigeria, an OPEC member, its path to quickly ramp up and take advantage of higher oil prices is limited by operational, regulatory and infrastructure challenges.
Nigeria has devalued its exchange rate three times this year already, going first from N305/$1 to N360/$1 and then to N390/$1. The exchange rate at the black market is currently at N475/$1 and rose as high as N502/$1 last week.
In 2021, Nigeria’s is expecting an oil revenue of N2.01 trillion based on a production of 1.86 million barrels (inclusive of Condensates of 300,000 to 400,000 barrels per day) at a crude price of $40 per barrel.
More than any other oil-producing country, Nigeria needs a combination of higher oil prices and favourable OPEC cut to fund its N13.083 trillion 2021 budget and survive its economic recession which is the worst in recent history.
