January 16, 2020 /11:08 AM / By FDC Ltd / Header Image By: FDC
In the wake of the Iranian General's assassination and reprisal attacks by Iran on US forces based in Iraq, the black gold (crude oil) recorded some gains albeit briefly.
Brent crude touched $69pb before retreating to $65pb. Some analysts are of the opinion that the risk of a retaliation by the US and the possibility of the crisis escalating further has already been priced in.
This explains why the uptick in oil prices was fleeting. Aside from the ongoing geopolitical tensions, the fundamentals driving the global oil market remain the same. There is the risk of an oversupplied market due to large US shale oil inventories.
However the deeper cuts imposed by OPEC and its allies should mitigate the risks of a supply glut. Saudi Arabia is committed to increasing its quota by another additional 167,000 bpd.
For Nigeria and any other oil producing country, struggling with low fiscal revenue, this period of high oil prices is a breath of fresh air. At $64-65pb, this is 14.04% above the 2020 budget benchmark of $57pb.
Also, Nigeria may need to depend more on higher oil prices to offset the anticipated reduction in its oil production as it complies with its OPEC quota of 1.77mbpd.
Currently, the external reserves level is at a 13-month low of $38.31bn (9.5 months import cover) while currency pressures are resurfacing. Also, the monthly federal statutory allocation shared in December fell by 9.43% to N635.83bn.
This means that there are tough times ahead for the country and it needs all the support it can get from oil.