Donald Trump, America’s mercurial president, rode the storm into the White House last week. His inauguration was greeted by unprecedented global protests against the hatred and racial bigotry he preached during the turbulent presidential election campaigns.
Trump’s unguarded utterances strangely contributed to the rise in oil prices last week.
He lambasted Angela Merkel, Germany’s resilient chancellor, for opening her country’s borders to unmitigated flow of immigrants.
He threatened to use the One-China Policy as bargaining chip against China’s advantageous trade balance with the U.S. and warned Toyota, the world’s largest automaker, that he would slap a 35 per cent punitive tariff on the company’s products if it builds a plant in Mexico and ships products into the U.S. The president extended the same warning to Volkswagen of Germany, Toyota’s distant second in the industry.
Trump’s undiplomatic tweets rattled world trade and sent the dollar plummeting. The loss of the dollar translated into gains for members of the Organization of Petroleum Exporting Countries (OPEC), particularly Nigeria.
Traditionally, the dollar and oil prices move in opposite directions even as oil is priced in dollars. Oil prices surge when the dollar is weak. It tumbles when the dollar gains strength. The reason is that investors save in oil and other commodities when the dollar is weak. They return to the green back when it gains strength.
That was how Trump’s unruly tongue gave oil prices considerable leverage last week by weakening the dollar and strengthening demand for oil momentarily. Oil price moved pretty close to $57 per barrel in the middle of the week before it dropped to $55. Besides Trump’s unpresidential utterances, the other factor that pushed up oil price was indications in the market that OPEC was determined to enforce the production cuts reached in Vienna, Austria on November. Russia, a non-OPEC member with the highest quantity of oil production, grudgingly agreed to keep 300, 000 barrels per day out of the market.
Last week oil prices could have surged closer to OPEC’s target of $60, but it was constrained by production boom in American shale oil fields. With oil price heading for $60, most of the shale oil operators who were forced out of business by low oil price and high production cost, stepped up production. The boom in the shale oil fields undermined OPEC’s production cuts and moderated prices in the process.
However, with Saudi Arabia and Russia determined to enforce the production cuts, no one sees oil price dropping below $50 in the next few weeks. That is good news for the architects of Nigeria’s 2017 Appropriation Bill. The projections for 2017 budget were predicated upon an oil reference price of $42.5 per barrel.
There are strong indications that the reference price is attainable. Nigeria would even beef up its excess crude account considerably. With oil price hovering around $55, something close to $12 per barrel would be slipping into the excess crude account daily.
The upward trend in oil price is already manifesting in Nigeria’s foreign reserves. From a record low of $24 billion in November, reserves rose above $27 billion last week.
However, though the oil reference price looks attainable, the production quota of 2.2 million barrels per day remains a mirage because of the activities of the gunmen in Niger Delta.
Besides the known militants groups, a splinter group of criminal gangs stealing oil in the region have become so emboldened and confrontational that they sometimes openly negotiate with oil firms for ransom. In the last quarter of 2016, a criminal gang specializing in oil theft blew up an oil export pipeline owned by an indigenous firm in Ndokwa area of Delta State.
The company’s security team and the military joint task force laid ambush for the thieves and they walked into it. One of the criminals was arrested while the rest escaped. As the company mobilized to fix the broken pipeline, a group of heavily armed men halted the repair works and demanded N500 million for the oil spill caused by some of them.
Men of the military joint task force threatened to shoot the leader of the armed gang. The gang leader spread his arms and ordered his men to shoot him. They fired several bullets with an AK-47 rifle at him. No bullet pierced through his muscular chest.
The military withdrew their threat. The company negotiated with the criminals who eventually collected N150 million in cash before withdrawing. When the repair crew appeared the next day to commence work on the broken pipeline, another gang showed up and reminded the company that N150 million was given to people who had no stake on the land. They demanded N200 million as ransom.
By now the company had lost four working days on a pipeline that it collects $4 per barrel of oil transported through it. The managers paid the ransom before repair works commenced.
Pipelines vandalisation is a made-in-Nigeria crime. It would remain for a pretty long time because no one has worked out a credible way of combating it. Government must fashion out a permanent solution to pipelines vandalism, otherwise the modest gains in oil price would not bring in enough revenue to get the economy out of recession.
When the repair crew appeared the next day to commence work on the broken pipeline, another gang showed up and reminded the company that N150 million was given to people who had no stake on the land
