The international oil benchmark, Brent crude, rose above $56 per barrel on Tuesday, buoyed by Saudi Arabia’s plans to limit supply, offsetting worries that rising coronavirus cases globally would curtail fuel demand.
While the sustained increase in oil price means a potential boost to Nigeria’s crude oil export revenue, it will further push up the landing costs of petroleum products being imported into the country.
The 2021 budget, which was signed by the President, Major General Muhammadu Buhari (retd.), on December 31, was based on an oil price benchmark of $40 per barrel and a production level of 1.86 million barrels per day.
Brent crude, against which Nigeria’s oil is priced, was up 95 cents, or 1.7 per cent, at $56.61 per barrel as of 8:55pm Nigerian time on Tuesday after touching its highest since last February at $56.75.
Saudi Arabia plans to cut output by an extra one million barrels per day in February and March to keep inventories in check.
The Saudi cut is part of an OPEC-led deal in which most producers will hold output steady in February.
Last year’s record cuts from OPEC and its allies helped oil recover from historic lows reached in April. Some analysts believe the oil complex is underestimating supply levels, according to Reuters.
“Storage at Cushing is only 10.2 million barrels below the all-time record high, so there is no problem with supply here in the U.S., but the complex is responding positively to this chatter about undersupply,” said Bob Yawger, director of energy futures at Mizuho.
Oil also gained on expectations for a drop in US crude stockpiles. Analysts expect crude inventories to fall by 2.7 million barrels for a fifth straight week of declines.