Oil prices plunged to more than three-week lows on Friday. This came after a strong jobs data from the United States triggered concerns about rising interest rates, even as investors sought more information on the EU embargo against Russian refined products.
After reaching a session high of $84, Brent crude futures dropped more than 270 basis points to close at $79.84 per barrel. It dropped to its lowest session point, $79.72, on January 11.
After fluctuating between $78.00 and $73.13, U.S. West Texas Intermediate crude (WTI) finished down 3.3% at $73.39, its lowest level since January 5th. This past week, WTI lost 790 basis points while Brent crude fell by 780 basis points
What it means for Nigeria’s economy: The most recent status report from the Nigerian Upstream Petroleum Regulatory Commission showed that Nigeria’s crude oil output increased to 1.24 million barrels per day last month.
Nigeria’s current output is below the 1.8 million barrels per day production target set by OPEC for the West African producer. The country is trying to increase oil production to 1.6 million barrels per day in the first quarter.
However, for a net importer of refined petroleum products like Nigeria where domestic oil price regulation (subsidies) is in place, the moderation of oil prices may turn out to be an economic advantage, temporarily reducing the government’s inability to finance imports while also meeting other international obligations.
Reliance on oil revenue: Nigeria’s coffers are highly dependent on revenues from crude oil. Recent price action indicates that oil prices are near to Nigeria’s crude oil benchmark of $75 per barrel, according to the country’s margins for oil earnings.
Even though crude oil production for Nigeria has been estimated at 1.69 million barrels per day for 2023, the country still has a severe borrowing problem.
- Another significant concern for Nigeria is on the demand side which relates to how quickly China will recover after Beijing decided to drop its zero-COVID policy in December. Even though the world’s largest petroleum importer may take several months to recover to its pre-pandemic levels, signs suggest that oil prices are in a stable downturn.
- OPEC’s most recent prediction reveals that Chinese oil demand will rise by 510,000 b/d this year after falling by an anticipated 210,000 b/d in 2022.
- Meanwhile, the Swedish EU presidency on Friday stated that countries in the European Union have decided to impose price ceilings on Russian refined oil products to restrict Moscow’s ability to finance its invasion of Ukraine.
- 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 oil, is $100 per barrel, according to EU diplomats.
- The Kremlin claimed that the EU embargo on Russia’s refined oil products will exacerbate the current energy market imbalance.