Although still early in the year, oil prices has started off 2022 on a positive note, defying experts’ prediction of a ballooning surplus, instead surpassing $80 a barrel at the weekend. West Texas Intermediate crude in New York climbed five per cent during the week, despite closing lower by 0.7 per cent on Friday as it sold at about $80, while Brent, Nigeria’s benchmark oil, sold for around $82 per barrel
This is as global demand shrugs off the Omicron variant of the coronavirus, while a host of supply constraints hit producers from Canada to Russia.
With investment banks calling for higher prices and options contracts invoking the prospect of crude spiralling above $100, the commodity is threatening to intensify the inflationary pain felt by major consumers.
But the rally was bad news for fuel-hungry countries like Nigeria with the Nigerian National Petroleum Corporation (NNPC) now paying more in petrol subsidy and negatively impacting its contribution to the federation account.
Nigeria, a key OPEC member has also struggled to meet its oil allocation from the producers’ group, with flows of the once-key export grade Bonny Light now trickling out with significant delays.
Nigeria is pumping roughly 1.35 million barrels , the lowest figure in years.
Likewise, Libya – which managed to pump more than one million barrels a day every month last year but is now producing about 25 per cent less than that.
Goldman Sachs Group’s head of Global Research, said that only two countries in the world – Saudi Arabia and the United Arab Emirates – can pump more today than they did in January 2020 before the pandemic really hit demand.
“That could see the oil market tighten over the next three to six months,” he said.
Morgan Stanley expects Brent to climb to $90 a barrel by the third quarter and estimates that observable stockpiles fell by about 690 million barrels last year.
“We suspect that further strength lies ahead,” analysts at the bank said.
“With the prospect of low inventories and spare capacity by the second half, further demand recovery into 2023, and still limited investments being made, the oil market appears to be heading for a period with little margin of safety,” he added.
Internationally, rising prices would also be a big blow to US President Joe Biden, who invested a lot of time and effort in orchestrating a global release of strategic petroleum reserves, Bloomberg reported.
“The bullish sentiment has regained the narrative,” said Mr Michael Tran, a commodities strategist at RBC Capital Markets.
“With improving demand, tightening inventories, and questions of OPEC’s ability to ramp further, the directional arrows of progress point to further optimism,” he added.
Movements in the price of oil are felt more keenly and quickly than that of any other commodity because they pass almost immediately into the cost of end-products such as petrol, diesel and jet fuel.
While Nigerians wait with apprehension for the planned removal of subsidy in the New Year, this month, there were riots across Kazakhstan after the government there allowed the price of liquefied petroleum gas – a key road fuel – to surge.
The dynamic means prices will be monitored closely by central banks that are trying to keep a lid on inflation while at the same time fostering economic growth as nations emerge from the Covid-19 pandemic.
In terms of petroleum demand, the Organisation of Petroleum Exporting Countries (OPEC) and its producer-nation allies have signalled that they are confident the virus will not derail the recovery, and will continue with their strategy of gradually restoring output halted during the pandemic.
While the group still says it believes markets are tipping back into oversupply, its forecasts for this quarter have turned markedly less pessimistic as supply growth from its rivals disappoints.
The alliance sees an excess of 1.4 million barrels a day in the first quarter, 25 per cent less than its projection a month ago. It anticipates a rebound of 4.2 million barrels a day in global consumption this year, and demand topping 100 million barrels a day by June.
But a deep freeze in Canada and the northern US is disrupting oil flows, boosting prices just as American stockpiles decline even as Russia failed to boost oil output last month despite a generous ramp-up in its OPEC+ quota.
As well as headline prices, the forward curve for oil has turned more bullish too, with more-immediate contracts commanding larger premiums to later months, an indication that buyers are willing to pay higher to secure barrels more quickly.
Emmanuel Addeh in Abuja
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