Oil prices have reached their highest levels since 2014 after Saudi Arabia announced that it would continue its voluntary production cuts of one million barrels per day until the end of 2023.
Russia also surprised the market by extending its export cuts of 300,000 barrels per day for the same period.
Surprise oil production decision shoot up prices
This decision was unexpected, as many anticipated that Saudi Arabia would ease its supply restrictions as global demand recovered from the pandemic.
The impact of this announcement has been a significant boost in oil prices.
Brent crude, the international benchmark, has risen above $90 per barrel, marking a more than 12% increase since the beginning of the year.
West Texas Intermediate, the U.S. marker, reached $87 per barrel, its highest level in seven years.
While higher oil prices may benefit oil-producing countries like Saudi Arabia and Russia, they have implications for the global economy.
Elevated energy costs can contribute to inflation and potentially reduce consumer spending. This situation poses particular challenges for Nigeria, Africa’s largest oil producer and exporter.
Nigeria heavily relies on oil revenues, which account for approximately half of its budget and 90% of its foreign exchange earnings.
Nigeria has already grappled with the removal of fuel subsidies, resulting in a more than 400% increase in fuel prices.
Elevated crude oil prices could further drive up fuel costs, placing additional pressure on the government to provide relief to millions of Nigerians experiencing a decline in their purchasing power.
On a positive note, higher oil prices could bolster Nigeria’s oil revenues and improve its fiscal position.
This could empower the government to increase investments in critical areas such as infrastructure, healthcare, and education, which are essential for economic growth and development.