Oil prices surge above $90/b, boosts Nigeria’s FX earnings

…consumers to pay higher for fuel, other commodities

Oil prices at the international markets surged to a nine-year high since 2014 on Tuesday as Saudi Arabia announced the sustenance of its voluntary production cuts of one million barrels per day until the end of 2023 even as Russia also expressed its export cuts of 300,000 bpd extension until the end of the year.

Latest news on the global oil markets’ prices showed that Brent crude, the international benchmark, rose to above $90 a barrel, representing more than 12% increase since the start of the year, while West Texas Intermediate, the US marker, also surged to $87 a barrel, its highest level in seven years.

Industry analysts saw the decision by Saudi Arabia as a surprise and had expected the kingdom to ease its supply curbs as demand recovers from the pandemic.

As expected, the surge in oil prices will have mixed implications for the global economy in view of the fact that higher energy costs could fuel inflation and dampen consumer spending, especially for countries like Nigeria that are currently contending with multi-faceted fiscal and monetary policy whirlwinds.

Specifically, the surging prices hold promising potential for Nigeria in terms of accruable revenue from crude oil exports and by so doing, will help the Federal Government to rake in more foreign exchange (FX) to fund the budget and improve its fiscal position.

For instance, the improved FX accretion could help the government to increase spending on critical infrastructure, health and education as it is currently planning, reduce its borrowing and debt servicing costs with the attendant positive implications for the nation’s economic growth and development.

However, as an import-dependent economy, the rise in oil prices, if sustained as experts foresee, will accentuate the current challenge of surging inflation in the country, which peaked at 24.08% in July.

This is particularly certain as Nigeria has been struggling with the negative impact of the fuel subsidy removal since May 29 this year, as consumers now buy fuel by over 400% higher than the pre-subsidy removal ear with the attendant spiking prices of all consumer goods, especially food items.

For instance, the National Bureau of Statistics (NBS) reported that Nigerians paid 210.31% higher for petrol in June this year at N545.83 relative to the N175.89 they paid per litre for the commodity in the corresponding month of last year

In addition, oil prices surging in the months ahead will vitiate the impact of the fuel subsidy removal palliatives on the masses, who already are groaning under intense macroeconomic hardships associated with the fuel subsidy removal and Naira exchange rates unification policy of the President Bola Tinubu-led administration.

It is projected that the rising oil prices would invariably put more pressure on the government to provide succour for millions of ordinary Nigerians who have seen their purchasing power dissipate over the past months.

Techrectory, Business.

See also Ibom Air to terminate wet-leased aircraft operations

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