Oil prices
yesterday rose above $124 a barrel as violence continued in the oil-
producing Middle East along with post-election unrest in Nigeria.
Brent, the primary
of the major classifications of crude oil, gained 40 cents to sell at
$124.39 a barrel while US crude rose by 44 cents to $112.73, according
to a Reuters report published yesterday.
“Brent is again
within sight of the peak above $127 a barrel, reached earlier this
month, which was the highest since 2008 when the market reached its
all-time high of nearly $150 before crashing to less than $40,” the
report stated.
The persistent
unrest in Libya, violence in Syria and the post-election crisis that
broke out in the northern part of Nigeria have been adduced as reasons
for the new hike in prices, according to experts.
Bismarck Rewane, an
economist and the managing director of Financial Derivatives Company
Limited, said the global economy is presently dominated by four themes
? Japan’s natural disaster and nuclear fallout, the violence and
endgame in Cote d’Ivoire, the surge in world oil prices and the
attendant spectre of global economic recovery efforts derailing, and
the undesirable slide of Portugal into bankruptcy.
According to Mr
Rewane, the first three have short term positive effects on Nigeria
while the last has a neutral to negative impact.
“Nigeria’s export
market growth mirrors global economic conditions,” Mr Rewane said,
noting that it is gradually recovering as the global economy is
improving, after declining sharply during the recession years.
“Higher oil prices
may stifle global recovery but will have a positive effect on (our)
revenues. The current oil price spike is great news. It could also be a
double-edged sword and may be unsustainable,” he cautioned, warning
that guarded optimism is recommended for long-term planning.
Given the tactical
importance of crude oil to Nigeria’s economy, a number of global events
have combined to alter global energy supply and demand and, in essence,
prices too.
The political
unrest which originated in North Africa, starting from Tunisia then
Egypt and Libya has, like wildfire, caught on in the Middle East and
Arabian Gulf nations of Jordan, Syria, Bahrain and Yemen; and now
Nigeria. According to Mr Rewane, this state of affairs has brought
about major imbalances in the demand/supply dynamics of the global oil
market.
Rebuilding savings
The resultant surge
in oil prices has, however, helped buoy Nigeria’s revenues and rebuild
windfall savings; the Excess Crude Account (ECA) now boasts of US$7bn,
up from US$3.0bn in December 2010.
“Latest available
figures show that Nigeria’s windfall oil savings currently stand in the
region of US$6.9bn, buoyed by high global oil prices and improved
output. The ECA had been depleted to a near-zero level at the end of
last year from a high of US$20.0bn in 2007,” Afrinvest, a finance
research and analysis firm, said.
“The accretion to
the nation’s foreign reserves has also served as a buffer against the
capital flight that has seen an unusual spike in US dollar demand from
an excessively high US$2.0bn in February to about US$4.0bn in March
2011. This was fuelled by fears of a devaluation of the naira relative
to the greenback,” it added.
Nigeria’s Excess
Crude Account (ECA) was established in 2004 to save excess oil revenue
above the budgeted benchmark price (the difference between actual and
budgeted revenue) to help stabilise the budget and to potentially fund
domestic infrastructure investments.
Experts however say there are no legal arrangements for the
management of the ECA, and no mandate for it to be used as a fund for
future generations. They say legislative backing through an appropriate
constitutional provision is necessary, in addition to supporting
investment policy and guidelines, to set up a fund for future
generations.
