November 29, 2021/CSL Research
The Brent futures traded at US$72.81 per barrel on 26 November 2021. According to Reuters, the dip in price of BRENT was driven by concerns around a surplus in Q1 2022 following the uptick in the number of countries that are instituting lockdown measures on the back of the new COVID-19 omicron variant. The fourth wave of the virus is gathering momentum across the world. The attendant implication on the Nigerian economy is also becoming a cause for concern, as 2022 approaches.
Recently, the trend of consumer prices following the surge in the global cost of energy created the need for supply intervention by Organization of Petroleum Exporting Countries (OPEC). Consequently, the United States of America, the United Kingdom, India, China etc. tried coercing OPEC to improve the supply of the commodity. The expectation was for a supply increase that would outweigh demand and moderate rising energy costs. Following OPEC’s reluctance, however, the countries threatened the injection of their reserves to create a supply glut in the global oil market.
Recall that supply from OPEC remains short of allotted quota by 700,000bpd, with Nations like Nigeria leading among countries that have failed to meet their supply target. The Nigerian case which accounted for an average of 44.27m bpd is an offshoot of weakening infrastructure and difficulty in restarting oil facilities. According to the Chief Executive Officer of the Nigerian Upstream Regulatory Commission (NURC), the priority is to improve production from the current 1.4mbpd to 2.4mbpd in the coming months.
Based on these issues, the forecast for the international price of crude oil going into 2022 appears biased towards a decline, which becomes a major concern for Nigeria given the concentration of crude oil proceed in its export earnings, the impact on reserves and the management of FX supply towards exchange rate stability. Though many issues around the new variant remain unclear, we believe a fourth wave, if not nipped in the bud might be a serious concern for the overall economic outlook in 2022.
