The price of crude oil rose further Thursday exceeding $68 per barrel, its highest since May 2015, supported by unrest in Iran and raising concern about risks to supplies, cold weather in the United States boosting demand, and output cuts led by the Organisation of Petroleum Exporting Countries (OPEC).
The development, which will increase the Nigerian government’s oil revenues to fund the 2018 budget, will however, hurt the country’s finances via petrol imports and mounting demands by oil marketers for subsidy payments.
The Minister of State for Petroleum Resources, Dr. Ibe Kachikwu told newsmen in a recent interview that the recent petrol scarcity in the country originated from the high cost of crude oil in the international market, saying that while the country wants more revenues from its crude, it is difficult for petrol to be delivered at the fixed price of N145 a litre at the same time.
This is just as he informed the Senate Thursday that the ad hoc presidential committee on petrol scarcity that has been mandated with determining the feasibility of retaining the pump price of petrol at N145 per liter and may explore a plural pricing model.
Reuters reported that six days of anti-government protests in Iran, OPEC’s third-largest producer, have added a geopolitical risk premium to oil prices.
The unrest has not, however, affected production or exports from Iran.
Brent crude, the international benchmark, went up to $68.27 per barrel yesterday before coming down to $67.90 a barrel.
U.S. crude also rose to $61.86 and also touched the highest since May 2015.
Freezing weather in the U.S. has spurred short-term demand, especially for heating oil.
Apart from the spike in May 2015, oil is trading at its highest since December 2014 – the month after a historic decision by OPEC to stop cutting output to prop up prices deepened a price collapse.
OPEC, supported by Russia and other non-members, began to hammer out a deal to cut supplies again in 2016, aiming to get rid of a supply glut that had built up in the previous two years and boost prices.
The supply cut pact started a year ago and compliance has been high, aided by involuntary output declines in Venezuela, whose economy is collapsing, plus unrest in Nigeria and Libya.
Producers decided to extend the deal for the whole of 2018.
OPEC’s cuts are helping to reduce inventories around the world and in the U.S., crude stocks fell by five million barrels in the latest week, the American Petroleum Institute said on Wednesday ahead of the government’s supply report due later yesterday.
Balancing the trend towards a tighter market is higher production in the U.S., where the OPEC-led effort to push prices up is spurring more shale oil output.
The U.S. government forecasts that 2018 average oil production will hit a record high.
The rising cost of crude in the international market will boost the Nigerian government’s efforts to fund the 2018 budget but would hurt the country’s finances via petrol imports.
The 2018 budget was premised on an oil benchmark price of $45 per barrel, with a production estimate of 2.3 million barrels per day, including condensates, as against that of 2017, which was put at $42.50 per barrel and output at 2.2 million barrels per day.
Kachikwu told newsmen that it will be difficult for the federal government to enjoy more revenue from crude and at the same time sell refined products at a fixed price.
“Like I always say, in this portfolio, you carry two luggage: the first one is that the nation wants more revenue from its crude. So, I worked with OPEC to deliver that.
“But then the nation also wants delivery of refined products at a fixed price. So, sometimes, it is difficult,” he explained.
With the rising price of crude, the Nigerian National Petroleum Corporation (NNPC), which currently is the sole importer of petrol, bears the loss of selling petrol at N145.