Article Summary
- OPEC Secretary General believes that oil will fuel economic development in developing countries, thus contradicting the IEA’s statement that higher crude oil prices will stifle global economic growth.
- IEA Executive Director warns that higher oil prices could weaken the global economy and push consumers towards renewable energy and electric vehicles.
- Higher oil prices could mean higher costs for petroleum products in Nigeria, where there is no local refining capacity and inflation rates are already high.
The Secretary General of the Organization of Petroleum Exporting Countries (OPEC), Haitham Al Ghais, has said that oil will fuel economic development in developing countries.
Reuters reported that he made the statement on Thursday, April 27, while responding to a statement by the International Energy Agency (IEA) which said that higher crude oil prices will stifle global economic growth.
According to Al Ghais, crude oil is instead a precious commodity that will enable economic prosperity for decades to come. He said:
- “The IEA knows very well that there is a confluence of factors that impact markets. The knock-on effects of Covid-19, monetary policies, stock movements, algorithm trading, commodity trading advisors and Strategic Petroleum Releases (SPR) coordinated or uncoordinated, geopolitics, to name a few.”
- “If anything will lead to future volatility, it is the IEA’s repeated calls to stop investing in oil, knowing that all data-driven outlooks envisage the need for more of this precious commodity to fuel global economic growth and prosperity in the decades to come, especially in the developing world.”
The backstory
During an interview with Bloomberg earlier in the week, IEA Executive Director, Fatih Birol, said higher oil prices were capable of enabling a weaker global economy. He said:
- “OPEC should be careful not to cut production too much, lest crude oil prices rise to the point where it stifles economic growth and pressures consumers into moving away from costly fossil fuels to renewable energy and Electric Vehicles (EVs).”
Recall that on April 3, the International Energy Agency (IEA) said that developing countries may bear the brunt of the voluntary crude oil production cuts that were made by the Organization of Petroleum Exporting Countries (OPEC) and their allies on Sunday, April 2. According to the IEA, the significant new cuts in oil production announced by OPEC+ countries come during a period of heightened uncertainty for global oil markets and concerns about the outlook for the world economy.
The IEA believes that new OPEC+ cuts risk exacerbating those strains and pushing up oil prices at a time when strong inflationary pressures are hurting vulnerable consumers around the world, especially in emerging and developing economies.
Is this true for Nigeria?
Possibly. Higher oil prices could also mean higher costs for petroleum products. The country has no local refining capacity and cannot refine the oil to petroleum products but has to rely on imports because the Kaduna, Warri and Port Harcourt refineries are currently undergoing rehabilitation.
Nigerians are facing a 22.04% inflation rate as of March 2023 and this is reflected in higher costs for petroleum products like liquefied petroleum gas (LPG), and diesel. Kerosene and aviation fuel.
As of March 2023, Nigerians were paying an average of N11,000 to refill a 12.5kg cylinder of cooking gas, N264 per litre for petrol (PMS) and N1,142 per litre for kerosene.
Meanwhile, in March 2023, Brent crude prices peaked at $86.18 (March 6).
