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Nigeria’s sweet crude nears $75 complicating subsidy removal

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…OPEC to continue oil investments

Notwithstanding the extra oil revenue earnings that may accrue to Nigeria as a result of the ongoing oil rally driven by renewed demand, sustained subsidy payments and lower production continue to take a toll on the country’s forex reserves and fiscal position.

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Yesterday, Nigeria’s sweet crude, Bonny Light, gained 1.94 per cent to close at $74.68 per barrel, higher than Brent’s $72.77 and 2021 budget benchmark of $40 a barrel.

Nigeria’s oil production output dropped to 1.388 million barrels per day, from the 1.46mbpd it pumped in April, according to data from secondary sources in the monthly report released by Organisation of the Petroleum Exporting Countries (OPEC).

At $60 a barrel, the landing costs of Premium Motor Spirit had risen above N200 a litre, raising concerns for the economy already battling with high inflation. Also, the stalemate with labour has prolonged efforts at removing rising fuel subsidy.

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The country’s dependence on fuel importation due to the lack of local refining capacity has left fiscal authorities in a challenging situation when other oil producers are building their excess crude accounts.

Already, Bretton Woods institutions and petroleum marketers have raised concerns about the sustainability of subsidy payments, at a time the economy is recovering from the impact of COVID-19.

The cartel however still expects the global economy to accelerate in the second half of 2021, keeping its forecast of oil demand growth unchanged in its latest market analysis and pledging to remain vigilant to prevent prices from backsliding.

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As oil prices rally, OPEC Secretary-General, Mohammad Barkindo has said calls for energy transition should not crowd out any source of energy, like all energy sources of today will be required for the foreseeable future.

“We continue to urge all our member countries and the international industry to continue to invest in all sources of energy, including oil and gas, in particular using technology to mitigate against these emissions,” the head of OPEC added.

“For the industry, for OPEC, and all our member countries, and the global economy, all the energy sources of today will be required for the foreseeable future,” Barkindo said.

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“For us in OPEC, and in the industry, and in the mainstream of the global conversation, the energy transition is not a transition from one source of energy to another,” Barkindo noted.

Transition is moving away from greenhouse gas emissions in the exploration, production, transportation, and consumption of fuels across the board to more sustainable sources of energy that would address the emissions issue, OPEC’s chief said, adding that the definition of ‘energy transition’ should not crowd out any source of energy.

Commenting on the Net-Zero report of the International Energy Agency (IEA), which suggested that a net-zero pathway would not need any new investment in oil and gas, Barkindo said “you can invest as much as you want in renewables, but if the emissions problem is not addressed, net-zero goals would not be achieved.”

In the report, the IEA “punctured many holes themselves” because it was the Paris-based agency itself that was one of the first to raise red flags about a supply deficit after the 2014-2016 downturn, urging for more investment in oil and gas, Barkindo said.

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