Page 8 - DMEA Week 25 2021

DMEA COMMENTARY DMEA

Higher crude oil

prices bring no

joy to Nigeria

Domestic petroleum product price subsidies are acting
as a drag on the West African country’s economy.

AFRICA BRENT crude prices have risen by more than when [the oil market] gets too high, it creates a
45% since the beginning of the year, reaching big problem because your consumers shut down
their highest point since October 2018. They their demand. Demand will go down and obvi-
WHAT: topped $75 per barrel on June 22, up from $51.8 ously even as the prices go up, you will have less
The increase in Brent as of January 1. volume to sell,” he said at Citizens Energy Con-
crude prices will have a This rise ought to be good news for Afri- gress, a virtual forum organised by DMG Events.
limited positive impact on ca’s largest oil producer Nigeria, which took a The NNPC chief also pointed out that high
the Nigerian economy. financial hit last year when global energy mar- crude prices had a negative effect on Nigeria’s
kets plummeted in response to the coronavi- finances because of the government’s policy of
WHY: rus (COVID-19) pandemic and the price war subsidising domestic petroleum product prices.
Abuja subsidises between Russia and Saudi Arabia. After all, when When oil is more expensive, he explained, Abuja
domestic fuel prices, so it Brent prices rise, Nigerian crudes also gain value, must spend more in order to ensure that fuel
must spend more money since they are indexed to Brent. prices do not exceed the target figures. “[For]
when oil markets are However, the price increase is a matter of us as a country, as prices go up, the burden of
bullish. concern for Mele Kyari, the group managing providing cheap fuel also increases and that’s a
director of Nigerian National Petroleum Corp. challenge for us,” he said.
WHAT NEXT: (NNPC). Kyari pointed out last week that the He went on to say, though, that world crude
The government has country’s economy might suffer if crude prices markets had not yet reached the point of making
not indicated whether climbed too high. Nigerian fuel subsidies unsustainable. “[On] a
(or exactly when) it will net basis, you know, the high prices, as long as
change its pricing policy. Financial impact of subsidies [oil] doesn’t exceed $70 to $80 [per barrel], it’s
He indicated that his worries stemmed partly okay for us.”
from the possibility that high prices might lead
consumers to buy smaller amounts of crude and IMF concerns
refined fuels. The International Monetary Fund (IMF) appears
“In a resource-dependent nation like Nigeria, to have reached the conclusion, though, that

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