…Fuel subsidy on the rise
There is probable panic within the government circles on Wednesday as the price of crude oil soared towards $70 per barrels.
This is so, because Nigeria though a major oil producing nations, a huge volume of the revenue to be realized from this soaring price would be used as subsidy to bring into the country imported fuel. This would subsequently reduce the amount of revenue that would go to the Federal Account Allocation Committee (FAAC).
Most of the revenues accruing from the sales of crude oil by the Nigerian National Petroleum Corporation (NNPC) go to the Federal Account Allocation Committee (FAAC) which shares the money among the Federal Government, States and Local Government for payment of salaries their workers.
Not having enough money for the states could spark off agitations among workers.
Oil prices rose for a third day on Wednesday as the easing of lockdowns in the United States and parts of Europe heralded an increase in fuel demand over the summer months and offset concerns about rising COVID-19 infections in India and Japan.
Brent crude was 69 cents, or 1%, higher at $69.57 a barrel, U.S. West Texas Intermediate (WTI) crude rose 61 cents, or 0.9%, to $66.30 a barrel.
Both contracts hit their highest levels since mid-March in intra-day trade on Wednesday.
” return to $70 oil is edging closer to becoming reality,” said Stephen Brennock of oil broker PVM.
Already Nigerian National Petroleum Corporation (NNPC) had disclosed in advance that its projected monthly remittance to the federation accounts allocation committee (FAAC) for May will be zero.
The corporation said this in a letter to the accountant-general of the federation.
Mele Kyari, group managing director (GMD) of the Nigerian National Petroleum Corporation (NNPC), had warned that the corporation can no longer bear the burden of underpriced sales of premium motor spirit (PMS), better known as petrol, to consumers in the country.
He, however, promised that there will be no increase in the price of petrol until talks between the government and stakeholders are concluded.
“The price could have been anywhere between N211 and N234 to the litre. The meaning of this is that consumers are not paying for the full value of the PMS that we are consuming and therefore someone is paying that cost,” he had said.
In the letter to the accountant-general, NNPC said N111.96 billion will be deducted from April 2021 oil and gas proceeds — due to the federation in May — noting that the deduction is necessary to ensure the continuous supply of petroleum products to the nation and guarantee energy security.
“The Accountant General of the Federation is kindly invited to note that the average landing costs for Premium Motor Spirit for the month of March 2021 was N184 per litre against the subsisting ex-coastal price of N128 per litre, which has remained constant notwithstanding the changes in the macroeconomic variables affecting petroleum products pricing,” the letter read.
“As the discussions between Government and the Labour are yet to be concluded, NNPC recorded a value shortfall of N111.966,456,903.74 in February 2021 as a result of the difference highlighted above. Accordingly, a projection of remittance to the federation for the next three months is presented in the attached schedule.”
“A return to $70 oil is edging closer to becoming reality,” said Stephen Brennock of oil broker PVM.
“The jump in oil prices came amid expectations of strong demand as Western economies reopen. Indeed, anticipation of a pick-up in fuel and energy usage in the United States and Europe over the summer months is running high,” he said.
Crude prices were also supported by a large fall in U.S. inventories.
The American Petroleum Institute (API) industry group reported that crude stockpiles fell by 7.7 million barrels in the week ended April 30, according to two market sources. That was more than triple the drawdown expected by analysts polled by Reuters. Gasoline stockpiles fell by 5.3 million barrels. [API/S]
“If confirmed by the EIA, that would mark the largest weekly fall in the official data since late January,” Commonwealth Bank analyst Vivek Dhar said in a note.
The rise in oil prices to nearly two-month highs has been supported by COVID-19 vaccine rollouts in Europe and the United States where more than 40% of U.S. adults have received a vaccine.
Euro zone business activity accelerated last month as the bloc’s dominant services industry shrugged off renewed lockdowns and returned to growth.
“The partial lifting of mobility restrictions, the expectation that tourism will return in the near future, and the lure of the psychologically important $70 mark are all likely to have contributed to the price rise,” Commerzbank analyst Eugen Weinberg said.
This has offset a drop in fuel demand in India, the world’s third-largest oil consumer, which is battling a surge in COVID-19 infections.
“However, if we were to eventually see a national lockdown imposed, this would likely hit sentiment,” ING Economics analysts said of the situation in India.
Indian official data showed the coutry’s oil imports in March rose from the previous month, buoyed by an upturn in economic activity but it could take a knock again because of renewed lockdowns in the world’s third-largest crude importer.