Rising global uncertainty concerning the rout in the banking system following the collapse of three major global banks has plunged oil prices to 15 months low on Monday as energy traders are worried that the U.S. central bank might raise interest rates even higher this week. 

Brent crude oil, against which Nigerian oil is priced, declined by 3.2% to $70.65 a barrel to settle at its lowest level since December 2021 in the early hours of Monday. While the U.S. West Texas Intermediate crude oil stood at $64.59 per barrel, down by 3.2%.

The decline in global energy market on Monday was despite UBS, Switzerland’s largest bank announcing it was acquiring troubled Credit Suisse, the country’s second-largest lender for $3 billion to prevent a banking crisis from spreading into other key sectors.

“The market focus is on current banking sector volatility and the potential for further rate hikes by the Fed,” said Baden Moore, National Australia Bank’s head of commodity research.

While the US Federal Reserve is expected to raise interest rates by 25 basis points on March 22, some executives are calling on the central bank to pause its monetary policy tightening for now but be ready to resume raising rates later.

The upcoming OPEC meeting is also another potential catalyst for the market outlook. “Further downside risk to prices increases the probability OPEC reduces production further to support prices,” Moore added, referring to the Organization of the Petroleum Exporting Countries.

Meanwhile, Goldman Sachs has cut its forecasts for Brent crude oil after prices plunged on banking and recession fears. The leading investment bank now expects brent oil to average $94 in the next 12 months and $97 in 2024, this is about $4 to $6 from $100 previously predicted.

Despite the uncertainty in the market, some analysts predict that prices will trend higher over the course of the year.

After a week of steep declines, oil prices rebounded on Friday thanks to a meeting between Saudi Arabia and Russia that calmed markets and support measures that stabilized a banking crisis.

Brent crude oil, against which Nigerian measures, rose by 1.46% to $75.79 a barrel, while U.S. West Texas Intermediate oil rose 1.76% to $69.55. Both benchmarks had hit more than one-year lows earlier in the week and were on track for their biggest weekly falls since December 2021.

The collapse of Silicon Valley Bank and Signature Bank and trouble at Credit Suisse and First Republic Bank had put pressure on oil and other global assets this week.

However, the commodity recovered some ground on Friday after the European Central Bank and U.S. lenders announced various measures to curtail the situation.

A meeting between oil producers Saudi Arabia and Russia on Thursday also helped to calm fears. Furthermore, WTI’s fall this week to less than $70 a barrel for the first time since December 2021 could spur the U.S. government to start refilling its Strategic Petroleum Reserve, which would boost demand.

Similarly, the rebound in Chinese demand for the commodity also supported the increase in price as reports shows the U.S. crude exports to China in March rose to its highest level in nearly two and a half years.

Analysts believe there is sufficient support for the oil price, with OPEC+ having to convene an extraordinary meeting.

An OPEC+ monitoring panel is due to meet on Apr. 3. Despite the rebound, conditions for volatile trading remain intact, and the oil price roller-coaster is pausing for breath but is by no means over, according to oil broker PVM’s Stephen Brennock.

The Federal Government has disclosed plans to completely bring to a halt the matter of fuel subsidy in the country before May 29, 2023 when a new government will resume office.

The Federal Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed made the disclosure during a courtesy visit to the headquarters of Voice of Nigeria, VON in Abuja.

Investors King recalls that at the beginning of the year, Ahmed told Nigerians that fuel subsidy will be removed before the end of June to enable the federal government divert the large sum of money spent on subsidies to other sectors for national development.

According to the Minister, the subsidy ought to have been removed before now but for the recent general elections and upcoming national population census.

She noted that the fuel subsidy removal decision was hard to take at first but as more people reasoned with the government that the masses were not the ones benefiting from it and considering the large sum it has been adding to the government’s spending and deficit yearly, the decision became easier to take.

Ahmed disclosed that the federal government spends about N250 billion on subsidy every month as the subsidy cost per litre of petrol is around N350 to N400.

She stated that such a huge sum could be channeled towards the construction of more hospitals, schools, roads and other critical needs of the citizens to build a better nation.

On the benefits of subsidy removal, the minister mentioned that oil marketers would have the opportunity to import and sell petroleum products directly to Nigerians just like the Nigeria National Petroleum Company, NNPC is currently doing as the only authorised importer.

Her words, “The fuel subsidy is one of those political, economic decisions that you don’t want to have, but you’re stuck with it anyway. And right now, we have approval within the Appropriation Act to exit the subsidy by June 2023. Or at least, I can say, the Appropriation Act made provision that only allows subsidies up to June 2023.

“You can build more hospitals, more schools, provide more social services, improve infrastructure that will enhance the quality of life of the people, instead of just using it on a consumption item. You put gas in your car and in a couple of days it is gone and then you have to put again.

“So we do hope that this time around, that the whole country will work with the government to get rid of this subsidy to save us from continuously expending limited resources on a consumption item.”

However, the federal government is yet to spell out measures to reduce the effect of the subsidy removal on the citizens, though discussions and consultations are ongoing.