Petrol subsidy to bite harder as oil price rises to $90 per barrel

Oil prices rose on Wednesday to $90 a barrel for the first time since October 2014.

Over the past months, oil prices have continued to surge as countries relaxed lockdowns and dropped travel restrictions.

The current price is higher than the $62 per barrel oil benchmark in the 2022 budget signed by President Muhammadu Buhari last December.

With current realities, Nigeria is expected to earn an extra $28 on every barrel of crude sold — but the country’s subsidy shortfall payments will erode the gains.

In December 2021, subsidy payment gulped N270 billion, amounting to N1.43 trillion in annual expense, shrinking revenue accrued to the federation account.

At 6:15 pm on Wednesday, Brent, the global oil benchmark, climbed 2.30 percent to $90.23 while U.S. West Texas Intermediate (WTI) crude futures also witnessed a corresponding increase of 2.48% to $87.72 a barrel.

This development comes amid rising tensions between Russia and Ukraine, which raised concerns about potential supply disruptions in the global oil market.

United States President Joe Biden had said that he would consider personal sanctions on President Vladimir Putin if Russia invades Ukraine.

But Goldman Sachs said supply disruptions are unlikely to occur but that there could be an upside for energy prices given an already tight market.

“Commodity markets are increasingly vulnerable to disruptions, after a couple of years of historically low outages following the initial Covid shock,” the firm wrote in a note to clients.

“Against the backdrop of the tightest inventory levels in decades, low spare capacity and a much less elastic shale sector, this points to the skew of large energy price moves to shift to the upside, reinforcing the case for a rising allocating to commodities in portfolios.”

On Wednesday, Zainab Ahmed, minister of finance, budget and national planning, said the Nigerian National Petroleum Corporation (NNPC) submitted a bill of N3 trillion to cater for petrol subsidy in 2022.

The federal government had suspended plans to remove fuel subsidy from July, due to “high inflation and economic hardship” — proposing an extension of 18 months before deregulation of the oil sector in line with the Petroleum Industry Act.