Oil prices plummet raising hopes of cheaper fuels in Nigeria

• It’s a mixed bag for Nigeria, says Dr. Muda Yusuf

Oil prices fell sharply yesterday following a peace deal secured between the U.S and Iran to end the war that began on February 28 and also an agreement to reopen the Strait of Hormuz more than 100 days after its closure.
By yesterday, Brent crude had dropped by about 4.53 per cent to trade at $83.37 per barrel, while West Texas Intermediate (WTI) had fallen 4.69 per cent to $80.90 per barrel. Oil prices, which peaked in mid-May, have been slowly but surely trending downward in recent weeks on rumors of a deal, even after multiple escalatory strikes.
An economist and policy analyst, Dr. Muda Yusuf, described the development as a mixed bag for Nigeria. According to him, while the price drop will naturally translate to a reduction in the pump prices of petrol, diesel, Jet A1 and gas, on the flip side, it portends a drop in revenue for the federal government.
“With the peace deal, crude oil prices will plummet and naturally this should cascade into the local oil market. So I expect that petrol prices should revert to what it used to be before the war. However, this will not be immediate because many of these distributors are carrying old stock, which they bought at a higher price before today (yesterday). Remember that the Middle East is a major producer and supplier to the market; Qatar has left OPEC, so they will be free now to flood the market, meaning we are likely to see an even more drastic reduction in price.
“However, the price reduction is likely to be gradual. But within the next four weeks or so, the situation should normalise and prices should come down to what normally it used to be. It should come to pre-war situation. If oil price comes to around $65 or so, then it should come to close to N800 or N900 per litre,” he said.
According to Yusuf, who is also the Chief Executive Officer, Center for the Promotion of Private Enterprise (CPPE), there is also a flip side to the price reduction for Nigeria.
“The flip side for Nigeria’s revenue is going to be negative because for all producing countries that were not caught up in this Middle East or Strait of Hormuz problem, who have been benefiting from the windfall, of course this will mean that the windfall will disappear. And earnings from crude oil will also affect revenue negatively.
“So we are likely to see a reduction in our oil revenue arising from this deal or the likely drop in crude oil price. It’s a no-brainer. The revenue will drop and of course it means that there are some benefits and some demerits,” Yusuf submitted.
The peace agreement, which will be formally signed on Friday in Switzerland, got further boost when President Donald Trump declared that a deal with Iran was complete, and writing on social media that “oil will flow” through the Strait of Hormuz once the deal is signed on Friday.
The peace deal remains very significant for the global oil market as tension around the commodity is expected to ease up. Iran, for instance, will be able to resume crude exports during the 60-day ceasefire period, meaning a suspension of sanctions on Iranian oil, while broader nuclear negotiations continue.
Stakeholders argued that while the agreement represents the most serious diplomatic breakthrough since the war began, they are however concerned that oil markets will remain on edge until the Strait of Hormuz is cleared of mines, the deal is signed, and normal shipping flows resume.