Oil price on Monday breached the $84 mark per barrel, the highest since 2014, following expectations the sanctions on Iran will test OPEC’s ability to replace the shortfall, despite the group agreeing in June to pump more after pressure from US President Donald Trump.
The higher oil price is good news to Nigeria which is currently struggling to fund its N9.1 trillion 2018 budget which was based on a US$51 per barrel oil price.
Brent futures were up $1.55 a barrel at $84.28 reaching the highest levels since November 2014. US light crude futures were up $1.48 at $74.73 a barrel, after touching $74.89, also the highest in nearly four years.
Ayodeji Ebo, managing director, Afrinvest Securities limited said this is positive for Nigeria’s oil receipts amidst widening budget deficit. Nigeria depends on revenue from crude oil exports to finance its budget and as a major source of foreign exchange.
“This will also provide some form of comfort for the foreign investors as this will cushion the depletion rate of the external reserves in the face of increasing capital flight”.
The downside, he said is that the NNPC will have to bear more cost in form of subsidy due to the higher landing cost of PMS. In addition, the government may draw back on its efforts to push more policies to diversify the revenue base of the economic from oil.
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“If the trend of high crude oil prices is sustained for some time, we could see an upward review in pump prices of petroleum products in Nigeria, “said an analyst.
According to Bloomberg report, Mercuria Energy Group Ltd has predicted $100 per barrel by end of the year. Trafigura Group expects crude oil prices to pass the $100 threshold in 2019. They are not the only ones with that prediction. Total SA sees $100 oil on the horizon but the French energy giant is not thrilled about it.
Patrick Pouyanne, Total Chief Executive Officer, sees supportive elements, such as looming sanctions on Iran and disruptions in Venezuela that are stripping supply from the market and pushing prices back into triple digits for the first time seen since 2014.
US sanctions against Tehran are widely expected to have an immediate impact on Iran’s oil exports, although the estimates of exactly how much of the country’s oil could disappear from November 4 vary widely. Some energy market analysts expect around 500,000 bpd to disappear once US sanctions against Iran come into force, while others have warned as much as 2 million bpd could come offline over the coming months.
HOPE MOSES-ASHIKE & FRANK UZUEGBUNAM
