Oil Prices Near $80 as Omicron Concerns Ease

Oil prices rose over three per cent on Monday on hopes that the Omicron COVID-19 variant would have limited impact on global demand in 2022, even as surging cases caused flight cancellations in some countries.

Global benchmark Brent crude rose $2.59, or 3.40 per cent, to $78.73 a barrel yesterday, while the United States West Texas Intermediate (WTI) crude rose $2.01, or 2.7 per cent, to $75.80 a barrel.

Prices of oil which had plunged by more than 10 per cent on November 26, when reports of a new variant first appeared, started to gain last week after early data suggested that Omicron could cause a milder level of illness.

Although the variant had been spreading faster than any COVID-19 variant yet, there’s been some relatively relieving news that most people infected with Omicron showed mild symptoms so far.

However, more than 1,300 flights were cancelled by US airlines on Sunday as COVID-19 reduced the number of available crews while several cruise ships had to cancel stops.

This caused disruption to the supply of goods and services from isolating workers, notably air travel, although the global recovery story for 2022 still remains on track.

Brent has risen by more than 45 per cent this year, supported by recovering demand and supply cuts by the Organisation of Petroleum Exporting Countries (OPEC) and its allies, collectively known as OPEC+.

On January 4, the producer alliance would decide whether to go ahead with a planned 400,000 barrels-per-day (bpd) production increase in February, but the cartel has so far stuck to its plans at its last meeting to boost output for January despite Omicron.

 OPEC has been struggling to meet existing targets under its agreement to gradually increase production by the 400,000 bpd each month, with Nigeria lagging behind for months.

But the country, a very active OPEC member had said even if prices fell to between $50 to $60, it won’t be much of an issue, with the country’s oil benchmark for the 2021 budget being $40.

Nigeria has failed for months to meet its allocation, due largely to waning investment, ageing upstream infrastructure and disruptions by some local host communities.

But the Group Managing Director of the Nigerian National Petroleum Corporation (NNPC) last week assured that by the year’s end, Nigeria should be able to produce about 1.7 million bpd. That target now looks almost impossible.

On December 22, Nigeria’s federal lawmakers approved a N17.126 trillion ($38 billion) budget for 2022, anchored on an oil price benchmark of $62 per barrel.

The approved oil price assumption was higher than the $57 per barrel price that President Muhammadu Buhari had proposed to the parliament on October 7, and also higher than the oil price benchmark of $40 per barrel adopted by the government for the 2021 budget.

Senate President, Ahmad Lawan, said the increase in oil price was to reflect the current market values of the oil barrel in the international market and to generate more funds for critical sectors of the economy.

However, the parliament retained the oil production target of 1.88 million bpd, including condensate production of between 300,000-400,000 bpd, for the purpose of its revenue calculation in 2022.

This compared to the output target of 1.86 million bpd the government had set for the 2021 fiscal year.

In all, oil exports account for around 80 per cent of Nigeria’s foreign exchange revenue, although the country has battled with a sharp drop in revenue amid a drop in production.

Nigeria has the capacity to pump around 2.2 million b/d of crude and condensate, but in recent months its output has been languishing below 1.55 million bpd.

In November, the NNPC was only able to contribute about N10.5 billion of its projected N122 billion to the federation account jointly run by the federal, state and local governments in the country.

 Emmanuel Addeh in Abuja

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