Rising Oil Prices: Factors, implications and near-term prediction
Background
Oil prices hit a two-year high with the global oil-price benchmark closing at $70 per barrel. This was in
reaction to the optimistic outlook reported by OPEC’s technical committee1. The recent surge in demand
stems from increased economic activities in the USA and Eurozone, especially following a widely
successful COVID-19 vaccination campaign. This reduced the need for strict lockdowns which had
hitherto grounded economic activities in many parts of the world.
Effects on the global economy
The recent surge in global oil prices is both a boon and a source of worry to countries across the globe.
Net energy exporters stand to gain from the current trend since it provides national governments with
much-needed revenues and foreign exchange, especially after a year of price glut and significant spending
in response to the pandemic. However, net energy importers face the prospect of relatively higher
inflation rate as surging commodity prices increases manufacturers’ cost of production. This could
hamper manufacturing activities as well as worsen the plight of consumers.
In contrast to the above distinction, Nigeria occupies a curious position. As an energy exporter, the
country stands to benefit from the recent surge in prices. This is especially important considering the
disproportionate role of energy revenues in the country’s fiscal and monetary policies2. Nonetheless, the
country’s reliance on imported refined petroleum products as well as other key items like food products
could reverse the gains from high crude oil prices.
Short Term Predictions
The recent surge in prices already incorporates all available vital information. However, a few
uncertainties remain. Foremost, the ongoing talks between Iran and the USA regarding the JCPOA
nuclear deal could swing prices either way, depending on its outcome3. Secondly, India’s COVID-19
virulence rate remains alarming. Further spikes in virulence and/or death rates could negatively affect
prices due to increasing likelihood of stricter restrictions on economic activities. In conclusion,
considering the incorporation of the current vital information, we expect gradual but sustained increase in
prices in the absence of unforeseen shocks.
1
https://www.wsj.com/articles/oil-rallies-to-highest-in-two-years-as-stockpiles-shrink-
https://www.cfr.org/blog/amid-oil-price-collapse-nigeria-running-out-foreign-exchange
3
https://www.reuters.com/world/middle-east/iran-nuclear-deal-parties-meet-wrap-up-latest-round-talks-/
2