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Oil price rises above $70 as supply drops

International oil benchmark, Brent crude, hovered near a three-year high of over $70 per barrel on Monday on signs that production cuts by the Organisation of Petroleum Exporting Countries and Russia were tightening supplies.

Brent, against which Nigeria’s crude oil is priced, rose to a high of $70.23 as of 7:45pm Nigerian time, while the United States’ West Texas Intermediate stood at $64.90 per barrel. Both benchmarks hit levels not seen since December 2014.

From around $53 per barrel at the start of 2017, Brent crude closed the year around $66.87, with experts describing the rise as good for Nigeria.

The nation’s external reserves hit a four-year high of $40.4bn on January 5, 2018, according to the Central Bank of Nigeria.

The rise in oil prices means further accretion to the Excess Crude Account, into which the country saves the difference between the market price of oil and the budget benchmark to provide a cushion when oil prices fall or extra cash is needed for spending on infrastructure.

The 2018 budget proposal submitted by President Muhammadu Buhari in November 2017 put the benchmark oil price at $45 per barrel, compared to $44.5 per barrel for the 2017 budget.

A production-cutting pact between OPEC, Russia and other producers has given a strong tailwind to oil prices.

Growing signs of a tightening market after a three-year rout have bolstered confidence among traders and analysts that prices can be sustained near current levels, according to Reuters.

Bank of America Merrill Lynch on Monday raised its 2018 Brent price forecast to $64 per barrel from $56, forecasting a deficit of 430,000 barrels per day in oil production compared to demand this year.

Other factors, including political risks, have also supported crude.

“OPEC and non-OPEC producers remain committed to production cuts at the same time world oil demand continues to increase,” said the President of Lipow Oil Associates in Houston, Andrew Lipow.

“As we go through 2018, the market is also going to continue to look at geopolitical supply disruptions that could occur in Libya, Nigeria and Venezuela.”

Meanwhile, sellers lowered their offers in West Africa as the market braced for March export plans over the coming days, according to Reuters.

Just over 20 February loading cargoes from Nigeria were still available, while the March export plan was expected by the middle to the end of the week.

While recent Indian tenders had absorbed some oil, both IOCs and BPCL also took grades from other regions, leaving more West African oil left to sell.

ExxonMobil had lowered its offer for Qua Iboe to a roughly $2 per barrel premium to dated Brent, down by roughly 25 cents from earlier offers.

Traders said other grades would need to soften as well in order to get spot deals moving.