Here is why oil price hits $80 in first week of 2022

The decision of the Organisation of Petroleum Exporting Countries (OPEC) and its allies known as OPEC+ to add another 400,000 barrels per day to its total oil production in February is having a multiplier effect on the international market as oil price hits $80 for the first time in 2022.

On Tuesday, Brent crude climbed 1.09 percent to $80.07 a barrel — the highest since November 2021 while the U.S. West Texas Intermediate (WTI) crude futures also witnessed a corresponding increase of 1.05 percent to $77 a barrel.

“The oil market is bullish today as a result of optimism sourced from today’s monthly OPEC+ meeting, which is helping oil prices trade higher,” said Rystad Energy’s head of oil markets, Bjornar Tonhaugen told Reuters.

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Four OPEC+ sources told Reuters that the group agreed in their meeting on Tuesday to add 400,000 barrels per day (bpd) to output in February because it expects the Omicron variant to have a short-lived impact on demand.

“Though Omicron cases continue to climb in key geographies, the absence of widespread lockdown restrictions will likely keep near-term demand concerns in check,” RBC analysts said in a note.

As oil prices continue to rally more recently, Nigeria’s expenses on fuel importation continue to dampen potential market advantages attached to the price increases. Increased global price of crude oil may not feed into significant economic outcomes for Nigeria since the country’s financing on the imported resource is unsustainable and domestic refineries are currently aground.

Hence, the current rally in global oil prices has left Nigerians with mixed feelings: the anticipation of a revenue boost through increased foreign exchange earnings and uncertainty in the face of current fiscal indiscipline and revenue leakages.

Nigeria’s 2022 proposed budget stands on N16.30 trillion planned spending for the fiscal year. This budget estimate is based on the anticipation that the exchange rate will be N410.15/$1, GDP growth will be at 4.2 percent per annum, and the inflation rate will average 13 percent.

Also, the expected crude oil benchmark price of $57 per barrel and a daily oil production estimate of 1.88 million barrels (including condensates of 300,000 to 400,000 barrels per day) are gauged as the minimum expected average against which the 2022 budget was prepared.