Crude prices could rise further amid tighter supplies, Vitol, the world largest independent oil trader, has said.
“These prices are justified,” Mike Muller, head of Asia for Vitol Group, told Bloomberg in an interview.
“Strong backwardation is very much justified,” he said, referring to a bullish pattern whereby near-term futures are more expensive than later ones.
Crude oil has already gained 10 percent since the start of the year, amid expectations that it could gain more.
Mr Muller added that unlike natural gas, whose high price has already prompted lower consumption for some industrial users, oil has yet to reach that price level.
“People will abstain from buying expensive energy at some point,” Mr Muller said of the gas sector at an industry webinar.
“The question is at what point that affects the oil market,” he added.
Crude oil prices recorded its longest winning streak since October, amid reports that China will release oil from its strategic reserve next month.
Analysts fear that this could disrupt the rally, but things have remained bullish.
The rise in crude oil prices remains significant in Nigeria, especially among its policy makers.
Last December, the National Assembly approved a N17.126 trillion ($38 billion) budget for 2022, anchored on an oil price benchmark of $62 per barrel. The oil price outlook was quite higher than the $57 per barrel price that President Muhammadu Buhari proposed to the parliament on October 7.
While oil exports account for about 80 per cent of Nigeria’s foreign exchange revenue, the country has battled with a sharp drop in revenue amid a drop in production.
Although rising crude price should signify higher revenues, Nigerians do not get the full benefits of the bullish pattern because a large portion of the the revenues are pumped into petrol subsidies.
Between January and November 2021, subsidy rose to N1.16 trillion, according to data from the Nigerian National Petroleum Company (NNPC) Limited.
Brent crude reached a two-month high last week, trading at $86.06 per barrel as of press time Tuesday morning.
WTI traded at over $83 per barrel as of 9:28am Tuesday.
Mr Muller noted that the White House may decide to release more crude oil from the strategic petroleum reserve, on top of the 50 million barrels announced in November last year.
“The market’s saying: ‘More, please,” he told Bloomberg.
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