International oil benchmark, Brent crude, climbed towards a four-year high of $75 per barrel on Thursday, with traders pointing to tightening supplies at a time when political risks to the market are mounting.
Brent, against which Nigeria’s crude oil is priced, touched $74.75 per barrel on Thursday, having gained 10 per cent since the start of this month. It later stood at $73.77 per barrel as of 9:00pm local time.
The rise in oil prices means further accretion to the nation’s Excess Crude Account, into which the country saves the difference between the market price of oil and the budget benchmark to provide a cushion when oil prices fall or extra cash is needed for spending on infrastructure.
The 2018 budget proposal submitted by President Muhammadu Buhari in November 2017 put the benchmark oil price at $45 per barrel, compared to $44.5 per barrel for the 2017 budget.
The rise in price, which has spurred a sharp rally in energy shares, follows 16 months of supply cuts by the Organisation of Petroleum Exporting Countries and Russia that have removed at least 1.8 million barrels per day from the market.
That has mopped up the worst of the oil glut that hammered prices four years ago, with Saudi Arabia, OPEC’s de facto leader, showing little sign of moving to cool the rally as it tries to fund an ambitious and expensive programme of economic and social reform, according to the Financial Time
But the latest leg up over the past two weeks has largely reflected rising political risk, traders say. Tighter supplies in the market increase the importance of production threats, ranging from Venezuela’s economic collapse to the risk of the United States re-imposing sanctions on Iran’s oil exports.
“Geopolitics has a much bigger impact when the market is already tightening,” said Amrita Sen at Energy Aspects in London.
“We were already forecasting a supply deficit in the second half of this year, which would further draw down inventories, before factoring in the risks from Venezuela, Iran and increasingly Libya,” Sen added.
These three OPEC members have drawn increasing attention, overshadowing a recovery in the US shale oil industry, whose surging output has so far failed to derail the rally as it appears to have been largely absorbed by the strong global economy and oil demand growth.