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The price of Brent crude, Nigeria’s benchmark grade hit a high of over $72 per barrel which is its strongest since early December 2014 as geopolitical concerns in the Middle East and rising US crude inventory put the oil bulls firmly back in the driver’s seat.
Rallying oil prices will lead to an increase in crude oil revenue and also boost Nigeria’s foreign reserves, according to Emmanuel Afimia, Energy Economist at Afimia Consulting Services.
“The speculators in the future market are responsible for the increase; this is because they have predicted a fall in crude oil supply from the Middle East in the near future, which is affecting the price of crude oil,” Afimia said by mail.
The global oil marker rose as much as 3.9 per cent to $71.34 a barrel, blowing past its recent January peaks to reach a level last seen in December 2014. The change marks the biggest one day gain for the gauge since September.
“The higher crude oil prices we are currently witnessing simply means more income for both OPEC and non OPEC producing countries which they should take advantage of,” Abayomi Fawehinmi, an energy analyst at a Lagos-based consulting firm said.
The West Texas Intermediate benchmark advanced as much as 3.8 per cent to $65.84 a barrel, closing in on its recent January high of $66.66 a barrel.
“Also, the Middle East has the highest concentration of the major oil producing countries, so any issues or tensions there will affect oil supply,” Fawehinmi said.
Prices have firmed on escalating tensions in the Middle East as US President Donald Trump and its allies are considering military response against Syrian President Bashar Assad’s forces over alleged chemical weapons attack in western Syria.
Also, France, Britain and Middle Eastern allies, including Saudi Arabia, have publicly acknowledged internal deliberations on how to address the suspected poison gas on Saturday in the rebel-held western Syrian city of Douma, which the Syrian American Medical Society has said killed over 48 people.
Syria is not a major oil producer itself, however the wider Middle East region is the world’s most important crude exporter and tension in the region tends to put oil markets on edge.
“Russia vows to shoot down any and all missiles fired at Syria. Get ready Russia, because they will be coming nice and new and “smart”.
You shouldn’t be partners with a Gas killing Animal who kills his people and enjoy it,” Trump tweeted on Wednesday by 11.57 am.
Russia and Syria swiftly reacted to Trump’s threat on Wednesday.
Syria’s Foreign Ministry said it was not startled by the US’ “reckless escalation” via Trump’s tweets, the state-run news agency SANA reported, while Russian Foreign Ministry spokeswoman Maria Zakharova said in a Facebook post that “smart missiles should fly toward terrorists, not the legal government that has been fighting international terrorism for several years on its territory.”
There are also concerns that the US could renew sanctions against Iran, a major Middle East oil producer with daily oil production of about 3.8 million barrels.
Saudi Arabia’s foreign minister Adel al-Jubeir said on Tuesday it was uncertain whether talks concerning Europeans and the United States would be sufficient to fix the Iran nuclear deal’s flaws, and that Tehran’s “vision of darkness” had to be stopped.
U.S. President Donald Trump gave an ultimatum to the European powers on January. 12, saying they must agree to “fix the terrible flaws” of the 2015 agreement or he would refuse to extend the U.S. sanctions relief on Iran.
Speaking to reporters after talks in Paris, Foreign Minister Adel al-Jubeir said he believed France, Britain and Germany agreed that Iran’s ballistic missile program and regional activities had to be addressed, but they disagreed with the United States, Saudi Arabia and Israel on the need to revamp the accord.
“The present US government is currently showing the world that it’s not a country that honours agreement, so it won’t be a surprise if they don’t honour the agreement which will likely increase the price of oil,” Luqman Agboola, head of research at Sofidam Capital said.
Saudi Arabia Energy Minister Khalid al-Falih said on Wednesday that Saudi Arabia will not allow another supply glut, meaning that the de-facto leader of Organization of the Petroleum Exporting Countries (OPEC) would continue to suppress supply.
Also, US crude inventories rose by 1.8 million barrels in the week to April 6 to 429.1 million, according to a report by the American Petroleum Institute (API) on Tuesday, compared with analysts’ expectations for a decrease of 189,000 barrels.
Adding to rising storage levels, the US Energy Information Administration said on Tuesday that it expects domestic crude oil production in 2019 to rise by more than previously expected, driven largely by growing US shale output.
In its monthly short-term energy outlook, the agency forecast that US crude oil output will rise by 750,000 barrels per day (bpd) to 11.44 million bpd next year.
Last month, it expected a 570,000-bpd year-over-year increase to 11.27 million bpd.
That will likely make the US the world’s biggest oil producer by 2019, surpassing Russia which currently pumps out almost 11 million bpd.
Rising oil prices would be welcome by the cash strapped Muhammadu Buhari-led government which campaigned in 2015 on the bases of stopping all forms of subsidy payments on petroleum products but has however been secretly doling out billions of naira annually as subsidy under the disguise of “underecovery” on petrol alone to oil contractors and their cronies in the NNPC.
Last week, the Minister of State for Petroleum Resources, Ibe Kachikwu said state owned Nigeria National Petroleum Corporation was spending enormous resources subsidising petrol to the tune of over N1.4 trillion annually up from the very few hundred billions as at 2015 when the government came into office.
The Nigerian economy has been hammered by a lengthy collapse in oil prices that began in mid-2014, and snowballed into a two-decade low of $28 per barrel in January 2016.
The pain inflicted by militant attacks in the Niger-delta, which sent production levels to near decade-lows of 1.2 million barrels, dealt an even steeper blow on the oil-dependent economy.
A barrel of Brent oil sold for $72.20 on Wednesday April 11, according to data obtained from the Bloomberg terminal.
That’s a 30 percent increase compared to the same period last year ($55.2) and a 67 percent leap from an average of $43.10 per barrel in January 2016.
Oil production hit 1.8 million barrels daily in February 2018, representing a 50 percent increase from the 1.2 million barrels produced in the thick of militant attacks, according to the most recent OPEC data.
“The rallying oil price should have an immediate positive effect on Nigeria’s economy, But corruption is the elephant in the room,” Fawehinmi concluded.
Dipo Oladehinde
