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2022: Gloomy Start For Oil Sector As Nigeria Slashes Oil Prices

The Nigerian economy which relies on over 70 per cent of its revenue from oil may be in tougher times in 2022 as the Nigerian National Petroleum Corporation (NNPC) has slashed its official selling prices (OSPs) for Bonny Light and Qua Iboe crude oil for January loadings.

This was even as uncertainty has returned to oil markets at the end of the year as a new variant of COVID-19 combines with inflation fears to threaten demand.

According to Reuters, Bonny Light and Qua Iboe crude oil dated Brent is plus 24 cents and plus 34 cents per barrel, respectively in January.

The December differential for Bonny Light was plus 33 cents and for Qua Iboe plus 40 cents per barrel.

Loading programmes had earlier showed that exports of four of Nigeria’s main crude oil grades rises in December to 564,000 barrels per day (bpd) versus 507,000 bpd planned for November.

Meanwhile, a report by oilprice.com has said that predicting the price of oil is always difficult, but with an energy crisis in Europe, OPEC+ controlling production, the energy transition underway, and COVID-19 continuing, next year is particularly difficult to read

The global energy transition is facing plenty of problems, not least of which is rising costs, and will be a key factor to watch in 2022

Following the rebound in oil and gas demand in 2021, the market is headed to 2022 with renewed uncertainties about prices, demand, and the industry’s longer-term prospects as Omicron COVID cases spike and investors continue to press companies toward decarbonization.

Will oil and gas demand continue to recover and clean energy installations continue to surge next year? Or will risks lurking for some time materialise to hamper green energy rollouts and upend the rebound in global oil and gas demand?

The closer we get to the end of 2021, the more uncertain the 2022 outlook becomes, with Omicron spooking governments in Europe that have already started to tighten restrictions or re-impose strict lockdowns in the case of the Netherlands. The UK is not ruling out stricter measures, and many other European countries are tightening travel restrictions.

The Omicron impact on economies and fuel demand and the effect on oil demand recovery and prices will be a major theme throughout 2022, especially during the first few months of the year.

As difficult as it is to predict oil prices in “normal” circumstances, the uncertainties with the pandemic have made the task of forecasting even more difficult. Currently, outlooks range from oil averaging around $70 next year to hitting as high as above $100 per barrel at some point in 2022 or 2023.

OPEC sees a “mild and short-lived” Omicron impact on oil demand, while the International Energy Agency (IEA) expects a temporary slowdown in demand recovery due to the new variant, but not an entirely upended demand trend.

In the early days of the Omicron variant spreading, JP Morgan said that oil could soar to $125 per barrel next year and $150 in 2023 due to OPEC’s limited capacity to boost production.

OPEC left the door open to potential immediate adjustments in its oil production policy with the Omicron uncertainty, so the cartel’s actions would be an important driver of oil prices next year, along with the COVID developments.

Oil prices rising to $100 a barrel is unlikely, at least for any sustained period next year, Simon Flowers, Chairman, and Chief Analyst at Wood Mackenzie, wrote in a recent post discussing the key themes in oil and gas in 2022.

Some analysts expect a harsh colder-than-usual winter in the northern hemisphere to exacerbate the energy crisis in Europe and deplete its stockpiles of natural gas in storage which are already at a decade low for this time of the year. This could prop up demand for heating with fuels other than natural gas, including oil products, potentially driving up oil demand even if lockdowns limit gasoline consumption.


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