Nigeria’s oil benchmark, Brent, crossed the $75 price per barrel mark yesterday, setting a new record last seen in April 2019, on the back of continuing signs of a rapidly tightening market supply of the commodity.
While Brent oil futures was up 0.4 per cent to hit $75.19 per barrel, the United States oil standard, West Texas Intermediate (WTI) futures was up 0.10 per cent to around $73.19 per barrel.
Both benchmarks have risen for the past four weeks on optimism over the pace of global COVID-19 vaccinations and expected pick-up in travels in Europe and America.
Last week, the Nigerian National Petroleum Corporation (NNPC) Group Managing Director, Mallam Mele Kyari, had said that rather than being a positive development, the rising prices of crude oil in the international market could cause major challenges for resource-dependent nations like Nigeria.
Describing the phenomenon as a “chicken and egg” situation, Kyari stated that oil prices had started exiting the comfort zone set by the NNPC, and it was becoming a burden.
Kyari put the comfort zone globally at $58-$60, saying that for the NNPC, anything above $70-$80 will create major distortions in the projections of the corporation and cause additional problems for the oil corporation.
The NNPC has continued to battle the dilemma of rising oil prices, which aggravates its burden of shouldering the payment of petrol subsidy, which has made it unable to contribute to the Federation Account Allocation Committee (FAAC) on two occasions this year.
Aside from increasing subsidy payments, Kyari expressed the concern that as the prices of oil rise, buyers of Nigeria’s crude may be compelled to accelerate their investment in renewable sources of energy, thereby leaving the industry in a quagmire.
The new high is more than 50 per cent this year for the product that sold for below $10 around March last year, while WTI spiralled southwards to the negative territory, with sellers in some countries offering dollar incentives for buyers to evacuate their huge inventories.
However, the latest rebound has been largely attributable to rising economic activities in the U.S and China as countries continue their recoveries from the COVID-19 pandemic and ramping up vaccination of their citizens.
Also fuelling the bullish market is a Bank of America Corp. forecast that the global crude benchmark could hit the $100 a barrel mark in 2022, giving credit to a rebound in travel.
If crude returns to triple digits, it will be the first time since 2014, before a flood of North American shale oil sent the market into a slump from which it has never fully recovered.
According to the bank, global oil consumption will continue to outstrip supply in 2022 as the economic recovery from the pandemic boosts fuel consumption, while investment in new production is crimped by environmental concerns.
In addition, negotiations to revive the Iran nuclear deal took a pause on Sunday after hardline judge Ebrahim Raisi won the country’s presidential election, dimming early chances of Iran’s full supply return to the oil market.
But the market has continued to be cautiously optimistic due to the inability of India, one of the world’s largest oil consumers, to fully exit the COVID-19 danger zone and the lessening of crude import quota by China, about 35 per cent less than the quantity in 2020.
Also, the soaring prices may be impacted next week as pressure mounts on the Organisation of Petroleum Exporting Countries (OPEC) and its allies (OPEC+) to consider reviving more of the production curtailed during COVID-19 when it meets at the end of the month.
Like the NNPC, which has predicted higher prices due to ongoing under-investment in the sector, Trafigura Group, the world’s second largest oil trading company, which also does business with Nigeria, has said that oil could top $100 a barrel in the next 12 to 18 months.
“The market is hungry for oil. Eventually, you are going to be in a situation where demand has not only recovered but is stronger than it was, and you don’t have that capacity you need. Prices could hit $100 as soon as next year and are likely to exceed that level within 18 months if the conditions are right,” Trafigura’s Global Chief Economist, Saad Rahim, told Bloomberg TV.
Meanwhile, the OPEC secretariat will mark the 50th anniversary of Nigeria’s membership of the organisation on July 12, having unanimously accepted the country as the then 11th member on the same date in 1971.
To commemorate the landmark date, the secretariat said it had pieced together a special bulletin that will look at the history of Nigeria’s relationship with OPEC, including the many giants of Nigerian public service who have been responsible for the successful five-decade relationship.
A statement by the organisation stated that the focal interview would be with President Muhammadu Buhari, whom it described as an OPEC veteran for over 40 years.
“Buhari has been heavily involved in the organisation’s affairs and is currently the only serving head of state in the world who made his career by being intensely involved in the OPEC family,” it stated.
According to OPEC Secretary-General, Sanusi Barkindo: “OPEC has been fortunate to benefit from the talent, wisdom and extraordinary capabilities of generations of Nigerian public servants. They have been integral to what the organisation has achieved.
“Over the course of the five decades of OPEC membership, Nigeria has been a constructive partner, seeking consensus, and always encouraging compromise. The special OPEC bulletin highlights all of this.”