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Chineme Okafor assesses the implications of rising oil prices on Nigeria, which relies on imported petroleum products to manage its economy
OPrices have continued to rise to new levels and the rise in oil prices is the specter of far-reaching sanctions that the United States has imposed on the Iranian regime to isolate it from economic interactions.
On Tuesday, crude oil prices jumped by more than 2 percent, reaching their highest level in four years after Saudi Arabia and Russia ruled out any immediate increases in production despite calls by the president of the United States. United States, Donald Trump, to increase the global supply.
Brent crude has already reached its highest level since November 2014 at $ 80.94 per barrel, up $ 2.14 (2.7%), before falling back to about $ 80.65 per barrel . Similarly, US light crude was $ 1.30 higher at $ 72.08.
This occurred after the leader of the Organization of the Petroleum Exporting Countries (OPEC), Saudi Arabia and his largest oil-producing ally outside the group, Russia, rejected a request by Trump to cool the market.
The new price hike also followed what had been obtained a week earlier when Bloomberg reports indicated that West Texas Intermediate (WTI) crude for October delivery rose $ 1.27 to close at $ 71.12 on the New York Mercantile Exchange, while Brent for the November settlement increased by 37 cents. close at $ 79.40 on the ICE Futures Europe stock market.
Nevertheless, commodities traders Trafigura and Mercuria have said that Brent could reach $ 90 per barrel by the end of the year and that markets will tighten as soon as US sanctions against Iran are fully implemented. from November.
According to JPMorgan, US sanctions against Iran could result in a loss of 1.5 million barrels of oil per day (MMBD), just as Mercuria warned that 2MBd could be eliminated from the global market.
However, these forecasts were corroborated by information provided by OPEC that its priority was to ensure the stability of oil prices, which would encourage the sector to return to investment.
At a recent conference on oil and electricity in Cape Town, South Africa, OPEC Secretary General Mohammad Barkindo said oil prices could stay on a trajectory he said, global demand for oil will reach 100 million barrels a day (in mbd) later this year. He also said that it could be much earlier than expected by the agreement.
"The world will reach 100 million barrels a day of consumption later this year, much sooner than expected. As a result, stabilizing forces that create favorable conditions for attracting investment are essential, "Barkindo told Reuters.
In its latest monthly report on the oil market in August, OPEC predicts that this year, total oil demand will reach 98.83 billion barrels.
Position of Nigeria
Normally, such a steady rise in the price of crude oil should be a blessing for Nigeria, given the revenue that the federation account should generate. However, the country Spends a lot of money subsidizing the consumption of petroleum products, especially gasoline, through its economy.
On the basis of rising oil prices, a new OPEC income statement released by the Energy Information Administration in August indicated that Nigeria had recorded a significant increase in its oil export earnings . Sales.
The increase in revenues is essentially related to price and production increases. Brent, which is the global benchmark for oil in Nigeria, hit $ 66.87 a barrel at the end of 2017, up from around $ 53 a barrel in early 2017 and continued into 2018.
According to the US EIA, OPEC member countries had net oil export revenues of about $ 567 billion in 2017. Net oil export earnings in 2017 increased by 29% over the previous year. to $ 441 billion in 2016.
Yet gasoline subsidies seem to have denied the country benefits from the rising price of oil. The gasoline supply figures identified by THISDAY have recently indicated that the amount of financial subsidy absorbed by Nigeria to keep the pump price of gasoline at 145 NKL per liter instead the expected price on the free market could have risen to € 65.6 K.
On the basis of rising oil prices, the cost of gasoline in the country had increased. TODAY, oilfield operators downstream of Nigeria realized that the cost of landing a liter of gasoline had risen to 196.3k NK / l.
On this basis, the Petroleum Products Pricing Regulatory Agency (PPPRA), a federal government agency charged with periodically calculating and approving product prices for the market, added the N14 distribution margin .3k approved in the latest pricing model for gasoline. at the landing cost of N196.3k and arrived at N210.6k, which should be the current price on the open market of a liter of gasoline in the country.
From there, he then calculated the difference between N210.6k (real market price per liter) and N145 (public price per liter) to reach N65.6k, either the subsidy or the under-recovery recorded for each liter of electricity. Provided fuel. by the Nigerian National Petroleum Corporation (NNPC), which since October 2017 has become the sole importer of gasoline in Nigeria.
THIS DIFFERENT this Wednesday, multiplied by 46.54 million N65.6k N, recently announced the Ministry of Petroleum Resources in its letter of information on the daily consumption of gasoline of the country in August, to reach N3 .053.024.000, figure that the country could have incurred daily as a subsidy for the consumption of gasoline.
In addition, over a 31-day period in August, the calculation indicated that the NNPC could have absorbed N94,643,744,000 as a subsidy to keep the pump price at 145 N per liter.
Although the NNPC did not confirm these figures, its general manager of public affairs, Mr. Ndu Ughamadu, however, explained to THEDAY that she had the financial capacity to absorb any discrepancy between the costs. of landing and the price at the pump in the country.
Ughamadu also said the NNPC would continue to shoulder such a burden to maintain stable gasoline reserves for all Nigerians.
Currently, the NNPC is currently acting as a "social provider" with reference to the PMS. The NNPC has the financial capacity to absorb any discrepancy between the cost of landing and the current price of the PMS, "said Ughamadu.
He added: "The company will therefore continue to bear the associated losses to ensure an adequate and robust supply of petroleum products to consumers and all Nigerians."
In December 2017, when the price of a barrel of oil was 64.37 dollars per barrel, Dr. Maikanti Baru, general manager of the NNPC group, told reporters that the cost price of gasoline was 171.40 nairas and the metric ton cost $ 620.
Similarly, Baru explained that the NNPC crude for the commodity exchange program – Direct Sales Direct Purchase (DTH) – was under pressure and unable to meet the increased gasoline consumption in the country as it had was originally scheduled to reach the country's daily consumption of 35 million liters.
He stated in particular: "The landing cost corresponds to the CIF price (cost, insurance and freight) of the PMS. On Friday, the CIF price was close to $ 620 per metric ton, with an official exchange rate of $ 305 per dollar, the cost of landing $ 171.40 per liter.
"The government always said the price was N145 a liter. To do this, he instructed the NNPC to maintain the equivalent price of the deposit at 133.28 N per liter, which would maintain a cap at N145 per liter. a lot of profit between the two after the elimination of N7 transportation costs, so there is sufficient margin for marketers in this price caps PPPRA model ".
Poor social service
In context, the United States has recently linked Nigeria's social service delivery system to its consistent practice of state-funded subsidies for the consumption of petroleum products in the country, as well as to the state of the economy. his refusal to allow his electricity market to operate according to market principles. .
According to the United States, the country's decision to continue to transfer public funds to keep the price of gas pumps at lower levels, as well as electricity rates below cost recovery levels, means that less funds are available to finance education, health and other social sector services.
Stephen Haykin, director of the country mission for the United States Agency for International Development (USAID), who represented US Ambassador to Nigeria, Stuart Symington, said at the ceremony that, apart from the inefficient energy sectors of the country, the low tax revenues public investment mediocre in the social sector.
Haykin spoke at the 10th anniversary conference of Financial Nigeria Magazine in Abuja. He said: "Low public spending is one of the immediate causes of health, education and nutrition problems.
This is linked to very low government revenues, due in fact to low tax rates and weak tax collection systems.
"Weak social spending also results from transfers from the public and oil sectors and electricity, as fuel and electricity rates are lower than cost recovery levels."
In addition, an energy expert, Mr. Dan Kunle, in his analysis of the situation, said that Nigeria had mismanaged the rise in the price of oil. He noted that earning revenue from selling oil and paying for gasoline subsidies was a bad economic decision. According to him, the situation was not sustainable and would continue to affect the oil revenues accumulated in the country.
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