On Friday, oil prices fell to more than three-week lows. This came after strong US job data raised concerns about rising interest rates, even as investors sought more information about the EU embargo on Russian refined products.
Brent crude futures fell more than 270 basis points to $79.84 per barrel after reaching a session high of $84. On January 11, it reached its lowest session point of $79.72.
After ranging between $78.00 and $73.13, West Texas Intermediate crude (WTI) in the United States finished down 3.3% at $73.39, its lowest level since January 5th. WTI fell 790 basis points last week, while Brent crude fell 780 basis points.
What this means for the Nigerian economy
According to the Nigerian Upstream Petroleum Regulatory Commission’s most recent status report, Nigeria’s crude oil output increased to 1.24 million barrels per day last month.
Nigeria’s current output falls short of OPEC’s 1.8 million barrels per day production target for the West African producer. In the first quarter, the country hopes to increase oil production to 1.6 million barrels per day.
However, for a net importer of refined petroleum products, such as Nigeria, where domestic oil price regulation (subsidies) is in place, oil price moderation may prove to be an economic advantage, temporarily reducing the government’s inability to finance imports while meeting other international obligations.
Dependence on oil revenue
Nigeria’s economy is heavily reliant on crude oil revenues. According to the country’s oil earnings margins, recent price action suggests that oil prices are close to Nigeria’s crude oil benchmark of $75 per barrel.
Despite the fact that Nigeria’s crude oil production is expected to be 1.69 million barrels per day in 2023, the country still has a severe borrowing problem.
Another major source of concern for Nigeria is how quickly China will recover after Beijing decided to abandon its zero-COVID policy in December. Despite the fact that the world’s largest petroleum importer may take months to recover to pre-pandemic levels, signs indicate that oil prices are in a stable decline.
According to OPEC’s most recent forecast, Chinese oil demand will rise by 510,000 b/d this year after falling by 210,000 b/d in 2022.
Meanwhile, the Swedish EU presidency announced on Friday that EU countries have decided to impose price ceilings on Russian refined oil products in order to limit Moscow’s ability to finance its invasion of Ukraine.
According to EU diplomats, the price ceiling for fuel oil and naphtha, which trade at a discount to crude, is $45 per barrel, while diesel, which trades at a premium to crude, is $100 per barrel.
The EU embargo on Russia’s refined oil products, according to the Kremlin, will exacerbate the current energy market imbalance.
