The international price of crude oil continued its rise yesterday, extending three weeks of gains on the back of improving outlook for fuel demand as countries ramp up the lifting of travel restrictions, leading to tightening commodity supply.
While Brent crude, Nigeria’s oil benchmark, was up by over 35 cents, or more than 0.7 per cent, at $73.47, the highest since May 2019, U.S. West Texas Intermediate (WTI) gained over 31 cents or 0.5 per cent, to stand at $71.73 a barrel, earlier reaching the highest since October 2018.
Mass transport is returning to pre-pandemic levels and more planes are in the air as anti-coronavirus lockdowns and other restrictions are being eased, driving three weeks of increases for the oil benchmarks.
But the rising international oil prices pose a dilemma to Nigeria, which is earning the much-needed foreign exchange, but also portends increased importation costs for petroleum products and by extension the landing cost.
In March the Nigerian National Petroleum Corporation (NNPC) said it was paying about N120 billion in petroleum subsidies monthly, even at a time crude oil price was lower.
Since April, the national oil company has been unable to contribute to the Federal Account Allocation Committee (FAAC) due to payments to cover subsidy on petroleum imports.
However, the NNPC said the payment of subsidies was not affecting its obligations to its partners, although it would not be able to contribute to the account from where states and local governments get their monthly allocation.
At the weekend, a report by the International Energy Agency (IEA) urged the Organisation of the Petroleum Exporting Countries (OPEC) and allies, known as OPEC+, to increase output to meet recovering demand.
But the OPEC+ group has been restraining production to support prices after the pandemic wiped out demand in 2020, maintaining strong compliance with agreed targets in May.
“OPEC+ needs to open the taps to keep the world oil markets adequately supplied,” the IEA said.
The agency also claimed that based on current global economic growth expectations, demand for crude oil and petroleum products would be reaching pre-COVID levels by 2022.
However, it called for no more investments in oil and gas, as it is expected to hit net zero-emission levels by 2050.
The Paris-based energy watchdog said OPEC would need to increase crude oil supply to the market by 1.4 million bpd in 2022, which would mean a significant increase over its current July 2021-March 2022 targets.
The prevailing market conditions also coincide with Nigeria’s falling crude oil production output levels which hit a record low levels in May 2021, according to OPEC data.
The report indicated that in the first quarter of 2021, Nigeria’s average production was 1.410 million barrels per day, in April production stood at 1.460mbpd and was 1.388 barrels per day in May, leading to the loss of 72,000 daily barrels during the month.
But based on direct communication with OPEC, the cartel put the figure at 1.429 million barrels per day in March, 1.372 barrels per day in April and 1.344 mbpd in May, resulting in a shortage of 28,000 barrels between April and May.
The country’s average crude oil production based on secondary sources was 1.78 Mbpd in 2019 and 1.57mbpd in 2020, while total OPEC 13-member crude oil production averaged 25.46 mb/d during the month of May.