The recovery of oil prices in the international market to their pre-Covid-19 pandemic levels will be good music to the ears of the Nigerian government as that will certainly translate to more revenue.
The collapse of the prices to an all-time low last year led to a cautious optimisim by the Nigerian government, necessitating a low oil benchmark of $40 for the 2021 fiscal year. It is now $60 per barrel, meaning extra cash for the country.
Indeed, according to experts, the demand for oil is still lower than normal, and there are hopes of a speedier than expected economic recovery as vaccines are rolled out.
But with the government insisting that oil subsidy is gone for good, the Nigerian National Petroleum Corporation (NNPC), which is the sole importer of petroleum products will be forced to adjust its rates and communicate same to marketers.
It also means Nigerians may have to pay more at the pump because oil marketers will also find it not profitable to continue to sell fuel at the old rate.
According to the Managing Director of Financial Derivatives Limited, Bismarck Rewane, “the price increase is in the short run good for our national revenues even if not all of the extra cash is spent because of the budget benchmark. On the long run, however, the sharp price increase will accelerate the pursuit of alternative energy sources.”
Reasons for latest surge
“The biggest driver for the latest surge in prices seen through last week was a sharp upturn in expectations for economic and oil demand recovery on signs that the coronavirus may finally be in retreat,” Vandana Hari, founder of Singapore-based oil markets data firm Vanda Insights told the BBC.
Demand has been rising in parts of the world, particularly Asia. “We are quite optimistic about what it is that we are seeing in China,” Royal Dutch Shell chief executive Ben van Beurden said last week.
Other factors have also played their part to push up prices such as efforts by oil-producing nations, particularly Saudi Arabia, to limit output.
Since agreeing to the cut in production last April, producers have held back a cumulative 2.1 billion barrels of oil, leading to decreasing stockpiles.
The coronavirus crisis has been devastating for the petroleum industry, and last year prices slumped below zero with more than one billion surplus barrels.
Consumers are diverting spending from holidays and restaurant meals toward deliveries of physical goods.
Online boom
Demand for fuel from airlines has seen the most dramatic fall as travel curbs remain in place. Air passenger traffic is 70% below year-ago levels, according to the International Air Transport Association.
But demand has picked up in other areas, thanks in part to the shift to working and consuming more from home.
As consumers are buying more online, this has spurred demand for fuel to power delivery trucks and vans, along with cargo ships and and freight trains.
The e-commerce boom has also caused a spike for plastic packaging, which is made using oil products.
