Friday, December 11, 2020 / 9:38 AM / by FDC Ltd / Header Image Credit: Oil Price
On December 3, OPEC and its allies agreed to increase oil production by 500,000mbpd for 3 months starting from January 2021.
This was after a dispute between the three price leaders (Saudi Arabia, Russia & UAE) on whether to ease output cuts or not.
The discord pushed oil prices to $47pb after recording a 9-month high ($49pb) on the covid-19 vaccine breakthrough and recovery in Asian Fuel demand.
This decision by OPEC+ will bring the total production to 8.2mbpd from 7.7mbpd.
The cartel and its allies are optimistic about a recovery in global oil demand as people get inoculated.
Implications for Nigeria
Nigeria as a price taker stands to benefit from an ease in output cuts as that means it can produce more.
This would boost export earnings significantly and government revenue from oil.
Oil prices are currently trading at $48pb which is 20% higher than the $40pb 2021 budget benchmark.
An increase in oil revenue would increase forex inflows and could increase the ability of the CBN to support the naira.
The currency has weakened by over 30% YTD on limited forex supply, ra-tioning and heightened forex demand.