Nigeria gets major boost after crude oil prices rise to six month high of nearly $75 a barrel

NIGERIA has received another minor boost to her economy after global crude oil prices climbed to a six month high of $74.25 a barrel in response to a decision by President Donald Trump to punish countries that buy petroleum from Iran.

As Iran and the US are locked in a tense political stand-off, President Trump has imposed sanctions on Tehran and mounted a campaign for other nations to follow suit. Many are reluctant to as they have supply deals with the Iranians and the US granted them a waiver but today, President Trump has decided to end these waivers.

As a result, Brent Crude, which is identical to Nigeria's Light Bonny Crude climbed to its highest level since October last year. This year, the price of Brent Crude has risen by 40% aided primarily by production cuts by the Organisation of Petroleum Exporting Countries (Opec), as well as US sanctions on crude oil exports from Iran and Venezuela.

This latest price rise means further accretion to Nigeria’s foreign exchange reserves, which have been increasing in recent months. As of at April 17, the reserves stood at $44.736bn, up from a 2019 low of $42.296bn that was recorded on February 28.

Nigeria's budget is predicted on the country producing 2.3m barrels of oil a day and petroleum selling at a minimum of $60 a barrel. Although global prices are above the benchmark price, production is still lagging way behind as Nigeria's Opec quota has been cut to 1.68m barrels a day as part of the production curb.

Washington announced today that the waivers granted to eight countries would expire on May 2, after which they could face US sanctions themselves. China, India, Japan, South Korea, Turkey, Taiwan, Italy and Greece were the nations granted waivers to give them more time to find alternate energy sources but also to prevent a shock to global oil markets from the sudden removal of Iranian crude.

A White House spokesman said: “This decision is intended to bring Iran’s oil exports to zero, denying the regime its principal source of revenue." Last year, the US  re-imposed sanctions on Iran after President Trump pulled the US out of the landmark 2015 nuclear deal in May.

Since November, Italy, Greece and Taiwan have stopped importing oil from Iran, while the other five have not and have reportedly been lobbying for their waivers to be extended. However, this has been rejected with President Trump saying that Saudi Arabia and other Opec  nations could more than make up for any drop in Iranian oil supplies to global markets.

In January European refiners began turning to Nigerian crude oil grades following a drop in exports from Iran after the initial imposition of the US sanctions. A shortage of distillate-rich crudes in the Mediterranean caused by the dip in Iranian exports had redirected some supply away from northwest Europe.

Bismarck Rewane the managing director of Nigeria's Financial Derivatives Company, said: “Nigeria will benefit from the US decision to end the waivers but it is a short-term phenomenon, it is not sustainable. We will benefit from that but in the end, economic diversification cannot be compromised.

“We need to pursue that aggressively because it is only a matter of time before the global demand for oil begins to drop below the supply and therefore, the price will drop. India already buys a lot from Nigeria, already buying almost 30% of our crude."

Energy expert, Bala Zakka, said crude oil prices would increase on the back of the decision to end the waivers on Iran oil import. However, he added that the country would also have to spend more to import petroleum products as landing costs would rise.

Mr Zakka said Nigeria's oil exports would continue to face rising competition from US crude, however. He added: “Some of those countries will prefer to be political allies of the US.”