Combined effects of US storm and Ukraine/Russian spat rallies oil prices to over $93 a barrel

NIGERIA has been thrown an unexpected economic lifeline by the global economy as a combination of the political tension between Russia and Ukraine and the new US storm has rallied world crude oil prices to a lofty $93 a barrel.

Being a mono-economy with over 90% of federal government revenue coming from crude oil exports, Nigeria's fate as a nation is inextricably tied to that of the global petroleum industry. In the wake of the coronavirus pandemic when global oil prices collapsed as a result of weak demand, Nigeria had to resort to borrowing to fund her national budget.

Now, the situation has been reversed as the ongoing political tension in the former Soviet Union that has seen Russia move about 100,000 troops to Ukraine's border, has made the global oil economy jittery. Russia is concerned about Ukraine, with whom it shares borders,  joining the US-backed North Atlantic Treaty Organisation (Nato).

Russia's President Vladimir Putin has accused the US of trying to draw his country into a war in Ukraine, adding that America's goal was to use a confrontation as a pretext to impose more sanctions on Russia. Ukraine's President Volodymyr Zelensky warned, however, that a Russian invasion would not be a war between Ukraine and Russia but a full scale war in Europe.

With all these tensions in the air, the price of Brent Crude, the grade identical to Nigeria's Bonny Light Crude, rise to $93.44 a barrel yesterday.  This is than $30 higher than the federal government’s benchmark price for the 2022 budget and should things stay that way, it could reduce Nigeria's need for borrowing this year.

In the 2022 budget presented by President Muhammadu Buhari, Nigeria's economic projections were based on oil production of 1.88 million barrels per day at a price of $62 per barrel. So although this will mean more government revenue, rising oil price also translates to increased costs of petroleum products due to a lack of domestic refining capacity.

Apart from the Russian/Ukrainian crisis, a winter storm in the US is fuelling the latest rally, with output expected to fall in the Permian Basin, the largest US shale oil field. Nigeria has not been able to leverage the oil price rally as its crude oil production remains below the 1.68m barrels a day quota given to it by the Organisation of the Petroleum Exporting Countries (Opec), only producing 1.46m barrels a day.