The oil sector is Nigeria’s main source of revenue, and while there are calls for diversification in the country’s exports, the oil sector continues to bring in a lot of revenue for the country.
The Nigerian National Petroleum Company Limited announced on Wednesday that Nigeria earned N2.56 trillion in revenue from oil-related products.
The company announced that in only 13 months, the country brought in N2.56 trillion in revenue from the sales of petrol, kerosene and diesel. Petrol and diesel are generally used to fuel generators or cars, while kerosene is used largely to cook (either with stoves or with firewood in some parts). The staggered power supply in many areas of the country will undoubtedly be a contributor to the high amount of petrol sales, as people would seek to fuel their generators for alternative power supply.
These figures were revealed by the NNPC to be contained in the NNPC Monthly Financial and Operations Report for July 2021. According to a part of the report, the total revenue generated from the sale of white products (petrol, kerosene and diesel) between July 2020 and July 2021 sat at more than N2.563 trillion, with petrol (also known as Premium Motor Spirit, or PMS) making up about 99.6 percent of the total sales.
The report stated that in July 2021 alone, a total of 1.544 billion litres of petroleum products were sold and distributed by the Pipeline and Product Marketing Company (PPMC), with PPMC taking more than 99 percent of the entire volume.
Between July 2020 and July 2021, the total volume of petroleum products sold stood at 19.535 billion litres, with PMS (petrol) once again taking up 99% of the total volume.
This dominance by the petrol product underlines the long-standing reliance of the country on petrol (or PMS) for both internal use and export purposes. The reliance can be said to be forced, because many Nigerians have to turn to it due to the circumstances of the country. It can be argued that an improvement in the electricity situation will cause the reliance on petrol to be reduced.
Oil Extends Gain Above $86 Per Barrel Amid Tight Supply
Brent crude oil extended gains above $86.16 per barrel on Monday as global oil investors are projecting that supply will remain tight despite the surge in Libya crude oil production. The increase, they bet would be offset by restraint from top crude oil producers.
Frantic oil buying, driven by supply outages and signs the Omicron coronavirus variant will not be as disruptive to fuel demand as previously feared, has pushed some crude grades to multi-year highs, suggesting the rally in Brent futures could be sustained for a while longer, traders said.
“The bullish sentiment is continuing as (producer group) OPEC+ is not providing enough supply to meet strong global demand,” said Fujitomi Securities analyst Toshitaka Tazawa.
The Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, together known as OPEC+, are gradually relaxing output cuts implemented when demand collapsed in 2020.
But many smaller producers cannot raise supply and others have been wary of pumping too much oil in case of renewed COVID-19 setbacks.
Meanwhile, Libya’s total oil output is back to 1.2 million barrels per day (bpd), according to National Oil Corp. Libyan output was about 900,000 bpd last week owing to a blockade of western oilfields.
“Libya’s oil production had dropped to a good 700,000 bpd at the start of the year, which had played its part in the price rise,” said Commerzbank analyst Carsten Fritsch.
Concerns over supply constraints outweighed the news of China’s possible oil release from reserves, said Fujitomi’s Tazawa.
Sources told Reuters that China plans to release oil reserves around the Lunar New Year holidays between Jan. 31 and Feb. 6 as part of a plan coordinated by the United States to reduce global prices.
Saudi Energy Minister Prince Abdulaziz bin Salman said on Monday that it is the prerogative of the U.S. government whether to release supply from strategic petroleum reserves.
Festering geopolitical threats to supply are also supporting bullish sentiment, analysts said.
U.S. officials voiced fears on Friday that Russia was preparing to attack Ukraine if diplomacy failed. Russia, which has amassed 100,000 troops on Ukraine’s border, released pictures of its forces on the move.
Brent Crude Oil Trading at $84.53 a Barrel
The increase in Omicron variant cases has cast doubt on demand for crude oil in the near-term and trimmed gains recorded earlier in the week on Thursday during the Asian trading session.
The brent crude oil, against which Nigerian oil is priced, pulled back from $85.16 per barrel on Wednesday to $84.53 per barrel at 9:50 am Nigerian time on Thursday.
The uncertainty surrounding the highly contagious Omicron variant and its impact on fuel demand has shown by the U.S Energy Information Administration on Wednesday dragged on the global crude oil outlook.
The data released on Wednesday revealed that gasoline stockpiles rose by 8 million barrels last week, way higher than the 2.4 million barrel increase projected by experts. Suggesting that demand for the commodity is gradually waning in response to omicron.
“Gasoline demand was weaker-than-expected and still below pre-pandemic levels, and if this becomes a trend, oil won’t be able to continue to push higher,” OANDA analyst Edward Moya stated.
However, in a note to Investors King, Craig Erlam, a senior market analyst, UK & EMEA, OANDA, expected the impact of omicron to be short-lived. Libya’s inability to ramp up production after outage and OPEC plus continuous failure to meet production target are expected to support crude oil in the main term even with Kazakhstan expected to get back to pre-disruption levels in a few days.
“With omicron seen being less of a drag on growth and demand than feared. Combine this with short supply and there may be some room to run in the rally as restrictions are removed. Of course, Covid brings unpredictability and zero-covid policies of China and some others bring plenty of downside risk for prices,” he said.
Unrest in Kazakhstan and Libya Shoots up Oil Prices
The ongoing unrest in Kazakhstan and the supply outage in Libya have bolstered global oil prices on Thursday.
The deadly violence, across the tightly controlled former Soviet state, has been condemned by Russia, which sent paratroopers on Thursday into Kazakhstan to quell the unrest.
However, there were no indications that oil production in the country has been affected so far.
“The political situation in Kazakhstan is becoming increasingly tense.” German financial institution, Commerzbank said, “And this is a country that is currently producing 1.6 million barrels of oil per day.”
The Global benchmark Brent crude futures rose $1.78, or 2.2%, to $82.58 a barrel by 1445 GMT, the highest since late November. U.S. West Texas Intermediate (WTI) crude futures also gained $2.18, or 2.8%, to $80.03, the highest since mid-November.
However, Brent’s six-month backwardation stood at about $4 a barrel, its widest since late November.
Backwardation is a market structure where current prices trade at a premium to future prices. It is usually a sign of a bullish market.
In Libya, lack of maintenance and oilfields shutdowns has plunged the leading African oil producer’s output to 729,000 bpd.
According to Libya’s National Oil Corp on Thursday, production slumped from a high of more than 1.3 million bpd recorded in 2021.
The oil prices rallied despite a surge in United States fuel stocks last week.
The North American country’s crude oil stockpiles fell last week while gasoline inventories surged by more than 10 million barrels, the biggest weekly build since April 2020, as supplies backed up at refineries because of reduced fuel demand, Reuters noted.
OPEC+ on Tuesday agreed to further increase oil production by 400,000 bpd in February, as it has done each month since August.
Top oil exporter, Saudi Arabia however cut the official selling price for all grades of crude it sells to Asia in February by at least $1 a barrel.
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