SOPURUCHI ONWUKA
Prices of international crude oil grades took a dive on Friday after Iran conceded to demands by the United States to reopen the critical Strait of Hormuz to international merchant navy.
Fortunately for Nigeria, the short price boom cycle associated with the conflicts in the Middle East provided a short relief to the federal budget which was underperforming in both oil production numbers and market returns before the Iran war broke out.
The reopening of the Hormuz also raises hope for the domestic market as falling oil prices provide the logical grounds for local refiners and fuel importers to also tune down fuel prices from record highs as prices for crude oil feedstock weaken.
Market indicators at the end of the week showed that price for the key global reference crude oil grade, the Brent, fell by more than 10%, dropping to around $88 per barrel ($88/bbl) at the London Intercontinental Exchange (ICE); while the price for US West Texas Intermediate (WTI) grade also declined below $80/bbl.
Prices came tumbling after Iran confirmed that the Strait of Hormuz is now “completely open” to commercial shipping, marking a major turning point after weeks of disruption that had severely constrained global oil flows.
With Brent WTI crude grades falling by more than 10%, their lowest levels in over a month, the market has shown relief from the geopolitical risk premium that had built up during the conflict.
Market pundits point out that the reopening follows the 10-day ceasefire involving Israel and Lebanon, and visible progress in US–Iran negotiations even though the US maintains a naval blockade on Iranian ports as it demands more fundamental agreement on Iran’s nuclear program.
Daily Champion reports that whereas geopolitical risks surrounding the Iran war is yet to be fully dismantled, flow of oil cargoes from key Arabian producers would unleash millions of barrels into the market and address the supply concerns that spur prices.
It is, however, expected that oil price decline will be more of a climb down instead of free fall given that weeks of disruption have depleted inventories and altered trade flows, requiring time for supply chains to realign.
Updates for Nigeria’s leading reference crude oil grade, Bonny Light, were not immediately available even though all Nigerian light sweet grades are currently at a significant $8 premium to the Brent.
Thus, it is estimated that prices Nigeria’s light sweet grades of crude oil which are prized for high octane petrol yields, would range between $98 – $110/bbl after peaking at $136.74 on March 13 following unabated tension in the Middle East.
Market sources told Daily Champion that drop in prices was mere correction as, according to them, the jumps in oil prices were never supported by market fundamentals which are usually wound around capacity for sustainable production.
In the current instance, they pointed out, oil prices took a plunge on market sentiments associated with reopening of the Strait of Hormuz to commercial shipping vessels as geopolitical tension linked with the Iran war begin to wane.
The surge in prices has provided temporary relief to Nigeria’s fiscal projections in the 2026 budget which pegged oil revenue at $64.85 per barrel and daily output at 1.84 million barrels.
While the Iran war imposed harsh global economic conditions and spurred inflationary jumps across economies with unbuffered domestic fuel markets, the oil price surged plugged critical gaps in federal budgets at a time output plunged due to maintenance at critical production facilities.
While prices remain far higher than projected in the fiscal plans for the year, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) has declared restoration of full production capacity in the industry, assuring that Nigeria would still capture greater value from the market by driving output beyond the budget thresholds to about 2.0 mbd.
Beyond oil prices, the reopening of the Strait of Hormuz and prospects of war resolution being brokered by Pakistan are also raising the confidence level across global financial systems.
Equity markets surged, with major US indices posting strong gains as lower oil prices reduced inflation concerns and improved economic sentiment. Traders also calculate that easing energy costs could allow central banks to consider rate cuts later in the year.
For a better society
Follow us across our platforms:
Instagram – https://www.instagram.com/championnewsonline/
Facebook – https://web.facebook.com/championnewsonline
LinkedIn – https://www.linkedin.com/company/champion-newspapers-limited/
https://x.com/championnewsng/
You can also like and comment on our YouTube videos.
https://youtu.be/QIBfD1tT80w?si=R4Qf3so2LxYu3GC2
