Oil prices continued to climb on Tuesday, hitting their highest levels in years and extending gains.
Apparently, the rally was triggered after the world’s major oil producers represented by the Organisation of Petroleum Exporting Countries (OPEC) announced they were going to maintain current supply levels.
As of Tuesday, Brent crude, Nigeria’s oil benchmark, hit $83.4 a barrel, which was more than a three-year high, continuing its multiple-week bullish run, while the United States’ West Texas Intermediate (WTI) oil crossed $79, about seven-year record.
On Monday, OPEC had stated that it would maintain an agreement to increase oil production gradually, ignoring calls from the United States and India to boost output as the world economy gradually recovers from the Covid-19 pandemic.
This year alone, oil prices have surged more than 50 per cent, adding to inflationary pressures that crude-consuming nations were concerned may derail recovery from the pandemic.
The continuing soaring oil prices comes on the back of movement of consumers in Europe to the commodity as an alternative to gas whose prices are becoming prohibitive in several countries.
The development also coincided with information that OPEC has not approved Nigeria’s request for a higher baseline as the cartel’s allocation to Nigeria remained at 1.649 million barrels per day for November, with a baseline or reference production of 1.829 million barrels.
Nigeria recently wrote to OPEC requesting for an increase in its baseline because at the time it was determined, the country’s production was at its lowest, having been badly impacted by the crises in the Niger Delta at the time.
Compared with other selected OPEC+ nations, Angola has a production quota of 1.377 million barrels per day, Iraq has 4.193 million barrels per day, Kuwait was allocated 2.53 bpd in November, Saudia Arabia was apportioned 9.91 million bpd, United Arab Emirates (UAE) has 2.85 million bpd, while Russia has 9.913 million bpd.
In November, OPEC expects its members to produce 24.04 million bpd while non-OPEC members would pump 15.64 million bpd, taking OPEC and its allies’ total daily production to 39.694 million bpd.
But Nigeria had for some months been unable to meet the quota it was assigned due to dilapidating infrastructure, following years of under-investment, made worse by the impact of the pandemic.
This year, growth in demand has outpaced supply, helping prices to hit multi-year highs, but the situation could be reversed as OPEC+ ramps up production.
Rising oil prices also puts Nigeria in an awkward situation as it has had to pay higher subsidies on petrol, with industry leaders also expressing fears that as prices continue to soar, consumers may seek other alternatives.
Yesterday’s market conditions also meant that crude oil benchmark WTI was hitting the highest level in seven years after OPEC+ decided to continue making only small monthly additions to oil supply as rallying gas prices are boosting oil demand with gas-to-oil switch.
In addition, oil was caught again in the broader energy price rally, which saw record-high gas prices in Europe, yet again, and coal prices in Europe and Asia surging to multi-year highs, with oil consumption increasing by around 500,000 barrels per day (bpd) since the natural gas crunch began,
The OPEC+ Joint Technical Committee (JTC) said late last month that it expected a 1.1 million bpd supply deficit this year, which could turn into a 1.4 million bpd surplus next year.
Chuks Okocha in Abuja
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