Brent, the benchmark for Nigeria’s crude oil climbed 5 percent to $66 per barrel on Thursday after the Organisation of Petroleum Exporting Countries (OPEC) and allies members agreed to keep production levels unchanged, a notably more dovish stance than the expected modest production rise.
Early indications that OPEC+ won’t rush into boosting output aggressively and cautious commentary from the Russian and Saudi Energy Ministers reflected in the oil market on Thursday as international benchmark Brent crude rose 5.4percent to $66.14 a barrel as at 5:15 Nigerian time while U.S. West Texas Intermediate (WTI) crude futures stood at $63.97, around 4.39percent higher.
During Thursday’s meeting, Saudi Arabia’s Energy Minister Abdul Aziz Bin Salman urged “supply caution and vigilance in the oil market” and told members that “the right course of action now is to keep our powder dry, and to have contingencies in reserve to insure against any unforeseen outcomes.”
A similar cautious stance was echoed by Russian Deputy Prime Minister Alexander Novak, who said the oil market has not fully recovered yet “but we are in a much better shape, COVID remains an uncertainty, we have to stick to agreements.”
While this comment added to the oil boost, according to oil market watcher and Energy Intel reporter Amena Bakr, the comment was “code for the market can take more supply.”
Recall, there has been a long-running tension between Russia and Saudi Arabia on easing production, the former seeking more output even as Riyadh seeks higher prices.
Bloomberg agrees and notes that “between the lines, Novak is clearly making the argument for a production increase, while Prince Salman is making the argument for either a roll-over or a smaller increase.”
While the Thursday decision will give the coffers of members of the Organization of Petroleum Exporting Countries and its allies a much needed boost after a year of financial pain, it also carries some risks. Crude prices in the high $60s could help revive the cartel’s nemesis — U.S. shale drillers.
Implication for Nigeria
The implication of Thursday’s meeting showed Nigeria’s economy will continue to struggle with its low production quota.
The quota is about 1.45 million barrels a day. Although reports show that Nigeria breached its quota by producing 130, 000 barrels more to 1.6 million barrels per day. Late last year, Nigeria applied to have its baseline figure to be reviewed based on disagreements over the classification of output from the country’s Agbami field.
However, the news of higher oil price is also expected to ignite Nigeria’s oil revenue and more interest in Nigeria’s Eurobond market.
Higher oil price is also expected to give Nigeria’s naira a reprieve, easing investors’ concern that a steep devaluation may be unavoidable.
While the higher petrol price translates to higher revenue, it also means if the Federal Government’s pricing template is anything to go by, Nigerians may have to brace for an increase in the pump price of fuel in February.
This is going to add more financial burden to Nigerians who are already complaining of the high cost of petroleum products, which has negatively impacted on the price of goods and services.
