Nigeria’s economy faces uncertainty as oil prices rise above $70/barrel

It is mixed feelings for Nigeria as oil prices rose above $70 per barrel on Tuesday, the highest in two years, with the world’s biggest crude producers agreeing to a gradual easing of production cuts.

The development is expected to fetch more money for Nigeria through its crude sale at the international market; the resultant rise in landing cost of imported fuel could lead to an increase in pump price and dislocation of its socio-economic activities.

The Wall Street Journal reported that Brent crude, Nigeria’s kind of brand, rose 93 cents, or 1.3 per cent, to $70.25 a barrel, the highest since May 2019. West Texas Intermediate futures gained $1.40, or 2.1 per cent, to $67.72 a barrel. The US gauge settled at its highest level since October 2018.

Members of the Organisation of the Petroleum Exporting Countries and their allies, a group known as OPEC+, on Tuesday agreed to continue relaxing curbs on oil production, signalling their confidence in improving oil demand and a drop in the global supply glut.

This is in line with the group’s April decision to return 2.1 million barrels per day to the market between May and July.

Prices began rallying after a technical committee within the cartel on Monday confirmed forecasts for a rebound of six million barrels a day in world oil demand this year, according to people familiar with OPEC and its allies.

This is the first since April 2019 that the oil price will trade above $70 per barrel.

Saudi Energy Minister, Abdulaziz bin Salman, expressed optimism over a good recovery in demand in the United States and China.

OPEC+ is expected to meet again in July to discuss production policy.

Oil prices have been on a tear since late last year as coronavirus vaccines and supply curbs from OPEC and its allies spur hopes that global stockpiles will continue to slide.

It, however, still faces bumpy short-term demand amid concern that new virus variants will lead to more lockdowns, while vaccine rollouts are slower than expected in some countries.

Economic analysts expect the resurgence in the price of crude oil to boost the Nigeria’s revenue needed for the implementation of the 2021 budget, improve crude oil receipts, and consequently bolster foreign exchange inflows.

But there are fears that the prolonged high crude prices will ultimately lead to increase in petrol’s landing cost, and by implication hike in pump price.