By Ahmed Ayanfe
Consumers desperate for relief from the scourge of sky-high petrol prices won’t get it soon, if the latest forecast from Goldman Sachs commodity analysts is anything to go by.
Nigeria has continued to subsidize the petrol, which generally still sells for ₦165 per litre nationwide, although it could be more than double that price without the payment of what the government terms under-recovery.
In an update to their outlook for oil prices over the next 12-18 months, the team at Goldman warned that they now expect oil prices, measured by the Brent crude international benchmark to rise to nearly $140 a barrel as early as the next few weeks.
The prediction came just as the national electricity grid in Nigeria collapsed again yesterday, even as a handful of power Distribution Companies (Discos) apologised to the customers in their various franchise areas.
The price of oil and gas has already surged more than 50 per cent so far this year, driving up the average price of goods and services and causing inflation in many parts of the world.
In Nigeria for instance, the price of cooking gas also known as Liquefied Petroleum Gas (LPG) has soared by over 100 per cent in the last one year while the prices of diesel, jet fuel and kerosene have skyrocketed, increasing by as much as 200 per cent in some cases.
This year alone, the federal government is paying roughly 25 percent of the entire year’s budget on subsidies after it deferred its removal by about 18 months, citing its expected negative impact on the poor as the reason.
Despite the growing international price of oil, Nigeria has been unable to take advantage because it’s not able to produce the quota allocated to it by the Organisation of Petroleum Exporting Countries (OPEC).
In addition, the country does not refine a drop of the products it consumes and therefore spends its scarce foreign exchange to import the products amid a weakening dollar/naira environment.
Other countries of the world also affected negatively by the soaring fuel prices include the United States, for instance, which has now hit a record of nearly $5 a gallon as oil futures for both Brent and WTI crude were trading near $120 a barrel at the end of the week.
Although the longest global oil supply deficit on record ended in April after nearly two years, the Goldman team said it expects a resurgence in Chinese demand will more than offset the surprising durability of Russian crude exports.
“Oil’s structural deficit therefore remains unresolved, with in fact an even tighter oil market through April than we had expected. Supply remains inelastic to higher prices,” the Goldman team wrote.
Major oil producers have limited capacity to ramp production further in the near term and those that do have the spare capacity will likely be hesitant to fully use it due to a lack of exemptions from OPEC+ drilling quotas, the Goldman Sachs group said.
While OPEC+ agreed during its June meeting to boost production, members’ ability to aggressively accelerate drilling faces several challenges.