The escalating war between Russia and Ukraine has sent oil prices to new highs, with the Bonny Light breaking the $100 per barrel resistance level on February 24 for the first time since 2014.
As the United States and European allies of Ukraine threaten to tighten sanctions on Russia, oil traders are concerned about the prospect of supply in a market where demand is rising rapidly, as factories and broader economies open up to recover from the doldrums of COVID-19 restrictions.
Oil importers such as South Africa and Kenya are groaning as rising crude oil price sends the price of petrol, and by extension, other consumer good prices higher, escalating the current inflationary pressures in those countries, Daily Trust reports.
However, members of the Organisation for Petroleum Exporting Countries (OPEC) seem to be excited about the bullish rally in oil price as it gives hope of higher fiscal revenue, which may help to partly bridge budget deficits.
Paradoxically, Nigeria may be worse off as higher oil prices mean more subsidy payments for the government. Unlike its OPEC peers, Nigeria imports all of its refined petroleum products, mainly through “opaque” transactions coordinated by the Nigerian National Petroleum Company (NNPC) Limited, which puts the country’s daily consumption of petrol at 93million litres during peak periods.
With President Muhammadu Buhari reversing an earlier decision to halt petrol subsidy for genuine or otherwise reasons, he had to send a supplementary budget to the National Assembly a fortnight ago, seeking an additional N2.55trillion provision for fuel subsidy at a time when the crude oil price was lower at $95 per barrel.
Contrary to the positive vibes amongst OPEC members, Nigeria seems to be a net loser in the oil price equation. First, oil production has been very weak, on an average of 1.6million barrels per day, a level below OPEC quota and far behind the 1.88mbpd benchmark in the 2022 budget.
This reality reflects the poor investment in the sector over the past decade, a phenomenon that exacerbates the structural and communal issues of insecurity and theft, which continue to undermine the country’s oil output.
More importantly, the country’s shameful import of refined products exposes it to the vagaries of the volatile market, even as it paradoxically fixes the retail price of the imported refined products, a fiscal policy that means the government has to bear the burden of the higher crude oil price.
No wonder the country’s external reserve has shrunk almost $1billion or 1.7 per cent year-to-date at a time when the oil price has rallied over 40 per cent. So, as oil price rises, Nigeria paradoxically counts its woes.