Oil on Thursday touched $80 a barrel in London for the first time since 2014 as U.S. crude inventories fell and analysts raise their forecasts for crude prices amidst renewed sanctions on OPEC member Iran.
Higher oil price means lower budget deficit and reduced debt service burden for oil dependent economies like Nigeria.
Crude has rallied this month on concern that President Donald Trump’s decision to quit an international accord with Iran and reimpose sanctions will strain global supplies just as markets begin to show signs of a tightening.
Analysts say the glut that had weighed on prices for the past three years has finally been eliminated, thanks to strong demand in key markets like China and output cuts by OPEC and its non-cartel partners including Russia.
Oil’s advance to $80 brings it to the level that OPEC’s biggest member, Saudi Arabia, is reportedly seeking to cover the cost of weighty domestic spending commitments and raises hope that Nigeria’s projected budget deficit in 2018 and next year could narrow considerably.
Nigeria’s legislators passed the 2018 budget yesterday raising spending by N1.09trn and a likely supplementary budget could take aggregate federal spending to well over N10trn when the purchase of the Tucano jets as well fuel subsidy payments are factored in.
According to analysts at the global bank Goldman, “we believe the fundamental oil set-up today is similar: strong demand growth had already created a strong case for OPEC/Russia to exit the production cuts in 2H18; with the US re-imposing sanctions on Iran and problems in Venezuela and Angola and Mexico, the need for this OPEC/Russia supply increase is even more acute. Without it, oil shortages could develop by 2o19, which could begin to slow global economic growth.”
