BusinessDay
NigeriaDecides2023

Oil is near $100 but for Nigeria it is still a story of squandering of riches

With prices trading near a seven-year high as crude makes a roaring start to 2022, the finances of Africa’s most populous nation remain precariously challenged by corruption and bad management.

Nigeria’s opaque oil industry is hobbled by inept policies which meant the flight of badly needed investment resulting in the failure to produce more oil to take advantage of soaring oil prices.

The country’s president also doubles as petroleum minister but a lack of clear understanding of changing global energy dynamics and a damaging fuel subsidy regime has left Nigeria’s oil output below her OPEC quota.

“Nigeria is like a man who is dying from dehydration despite being in the midst of a ferocious rainfall,” says economist Festus Ogbobine.

Brent hovered near $92 a barrel while West Texas Intermediate rose 2% for the week as robust demand tightened global markets. As supply remains constrained, a chorus of Wall Street banks and oil executives are forecasting a return to $100 oil.

Additionally, heightened geopolitical risks driven by fears that Russia may invade Ukraine have also contributed to crude’s climb.

“Demand has been strong, supply has been struggling a little bit to keep up with that and that’s reflected in the market,” said Chevron Corp.

Chief Executive Officer Mike Wirth on Bloomberg TV. Wirth added that geopolitical events are impacting the commodity market more now than they did in the past and that $100 oil “is certainly within the realm of what we could see in the next few months.”

Oil’s stellar start to the year comes despite a soft patch in global equity markets after the Federal Reserve signaled it’s ready to tackle inflation.

For now, crude prices have defied the pull of weaker risk sentiment elsewhere, with consumption on the brink of returning to pre-pandemic levels.

Attention will shift next week to the Organization of Petroleum Exporting Countries and its allies as they meet Feb. 2 to assess the market and decide on supplies for March.

While OPEC+ has been steadily easing output curbs, there are concerns members have been unable to deliver the promised volumes in full.

“OPEC+ production has been gradually increasing, but still not enough to keep up with demand,” said Rohan Reddy, a research analyst at Global X Management, a firm that manages $2 billion in energy-related assets.

Additionally, if Russia invades Ukraine, “there is certainly some upside for oil, because not only could sanctions factor in, but theoretically, their position in OPEC+ would be threatened too, and they’ve been an important voice in the room there.”

Markets are also paying close attention to Ukraine on concern that Russia may launch an invasion after massing thousands of troops on the border, potentially disrupting energy supplies.

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