Nigeria’s oil futures, Brass River and Qua Iboe, recorded gains on Wednesday as escalating conflicts in the Middle East and between Russia and Ukraine, a shrinking United States rig count added to upward price pressure.
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On Monday, Brass River, a sweet medium light crude, gained 0.53 percent to trade at $89.73 per barrel, while the Qua Iboe, a light sweet crude grade, also gained 1.6 percent to trade at $89.73 per barrel.
ExxonMobil produces Qua Iboe from numerous offshore fields and exports through the Qua Iboe Terminal. The crude is known for its high quality and low sulfur content, making it a popular choice for refiners.
This uptick is attributed to various factors, including the tightening of physical markets, the decision by the Organization of Petroleum Exporting Countries and non-OPEC members to prolong production cuts, increased demand from major oil consumers worldwide, and escalating geopolitical tensions.
“Escalating geopolitical tension, coupled with a rise in attacks on energy facilities in Russia and Ukraine, alongside receding ceasefire hopes in the Middle East, raised concern over global oil supply,” said Hiroyuki Kikukawa, president of NS Trading, a unit of Nissan Securities.
“Falling U.S. rig count also increased worry over tighter supply,” he said.
Russia struck critical infrastructure in Ukraine’s western region of Lviv with missiles early on Sunday, Kyiv said, in a major air strike that saw one Russian cruise missile briefly fly into Polish airspace, according to Warsaw.
Moscow launched 57 missiles and drones in the attack that also targeted the capital Kyiv, two days after the largest aerial bombardment of Ukraine’s energy system in more than two years of full-scale war, Kyiv said.
The move follows Ukraine’s recent attacks on Russian oil infrastructure, with at least seven refineries targeted by drones just this month.
In the Middle East, Israeli forces besieged two more Gaza hospitals on Sunday, pinning down medical teams under heavy gunfire, the Palestinian Red Crescent said. Israel said it had captured 480 militants in continued clashes at Gaza’s main Al Shifa hospital.
Nigeria’s gambit
Although the rising price of crude oil could help in boosting funding for the country’s 2024 budget, which has a benchmark of $77.96 per barrel, the country has been unable to meet its production quotas as its declining production means it cannot increase crude oil revenue from oil sales.
Higher oil price also translates to a larger petrol subsidy burden on the Nigerian National Petroleum Company Ltd.
This is because the Federal Government has forced a lid on the retail price of petrol, even as the landing cost has long crossed the pump price, leading to the conclusion that the government has begun subsidising the commodity.
“A combination of higher exchange rate, higher oil price, and static retail price of petrol means higher petrol subsidy bill as Nigeria’s lack of refining capacity means it imports all the petroleum products it uses locally,” Charles Akinbobola, a Lagos-based energy analyst, said.
He added: “Nigeria’s petrol subsidy programme remains a contentious issue. While intended to cushion the blow of high pump prices for consumers, its true cost and funding mechanism are often shrouded in secrecy.”
