By Udeme Akpan, Energy Editor
THE price of Bonny Light, Nigeria’s premium oil grade, has surged further to $86.55, from $83.88 recorded last Wednesday, due majorly to sustained efforts of the Organisation of Petroleum Exporting Countries, OPEC, to achieve stability in the global market.
This showed an excess of $24.55 per barrel against the nation’s $62 per barrel reference price of the 2022 budget, which is also benchmarked on 1.8 million barrels per day, including Condensate.
The development, which OPEC said improved to $70.26 per barrel in 2021, from $40.78 per barrel in 2020, would impact positively on the nation’s Excess Crude Account, ECA, created in 2004 to stabilise the country’s economy and smoothen the impact of price volatility in oil exports.
In its December 2021 Monthly Oil Market Report, MOMR obtained by Vanguard, OPEC expects improved stability in the market in 2022.
It noted that oil demand was adjusted higher in the first half of 2021, amid better-than-anticipated transportation fuel consumption in Organisation for Economic Co-operation and Development, OECD.
Commenting on the market, the Senior Research Analyst at FXTM, Lukman Otunuga, lamented that the year 2022 could be a critical year for Nigeria’s economy as its fortunes still remain with what happens to the oil price.
He said: “Essentially, Nigeria’s outlook remains influenced by the same old themes. If oil prices remain stable, foreign exchange currency reserves and government’s revenue will likely rise.
“High oil prices may support the Central Bank of Nigeria, CBN’s effort to defend the local currency against external and domestic risks.
“Alternatively, if oil prices weaken, this could hit reserves, weaken the Naira and ultimately weigh on economic growth.
“When considering how the Fed remains on a path to monetary policy normalisation, the narrowing interest rate differential between both currencies may hit the Naira further.
“As 2022 gets into full swing, there are a couple of external and domestic themes that will influence economic growth.
“Inflation remains one of the primary themes that will influence global sentiment this year. Untamed inflation has prompted central banks to join the global tightening bandwagon.
“The Federal Reserve has indicated they could raise interest rates three times in 2022, the Bank of England surprised markets with a rate hike last year, the South African Reserve Bank also raised interest rates.
“However, with coronavirus cases soaring across the globe, some central banks are likely to think twice before raising rates.
“Central banks like the European Central Bank, People’s Bank of China, and Bank of Japan among many others fall into this category. We may see a world divided by various spheres of monetary influence as one camp embraces hawks and the other doves.
“This places Nigeria in a tricky position. Given how the Nigeria general election will be held in February 2023, the decline in inflationary pressures may be halted by political spending this year.
“If inflationary pressures make a return in 2022, the Central Bank of Nigeria may be forced to tighten monetary policy.
“However, cooling inflation will buy the central bank more time to leave monetary policy unchanged in an effort to support the economic recovery.”
Similarly, in an interview with Vanguard, Chief Executive Officer, Centre for the Promotion of Private Enterprise, CPPE, Dr. Muda Yusuf, said he looked forward to a sustained recovery of global oil price.
He had said: “We expect that the average oil price in 2022 will exceed the budgeted benchmark of sixty-two dollars ($62) per barrel, offering some fiscal headroom.
“This would be powered by higher energy demand driven by the recovery of economic activities globally.
“This trajectory is expected to impact on our foreign reserve and strengthen the capacity of the Central Bank of Nigeria (CBN) to support the foreign exchange market.
“The impact of the pandemic on the global and domestic economies is beginning to dissipate on account of increased vaccination and other measures to contain the pandemic.
“The capacity of many countries to manage the pandemic has progressively improved with each pandemic experience.
“Therefore, the shocks of a subsequent variant of the pandemic on the global and domestic economies are likely to be less severe than previous ones.
“Instances of lockdowns of economies are less likely to be prevalent in 2022. We expect to see less damaging response adopted by countries around the world.
“Therefore, both globally and domestically we are less likely to witness prolonged lockdowns.
“The activation of the Petroleum Industry Act (PIA) in 2022 is expected to impact positively on the economic outlook.
“We expect to see positive outcomes as investor sentiments in the oil and gas sector improves on account of the reforms anchored on the PIA.
“This will however depend on the political will deployed to drive the implementation of the provisions of the Act.”