Despite the fact that it is still early in the year, oil prices have started 2022 on a positive note, defying experts’ predictions of a ballooning surplus and exceeding $80 per barrel over the weekend.

Despite closing lower by 0.7 percent on Friday, West Texas Intermediate crude in New York gained 5% during the week, selling at around $80 per barrel, while Brent, Nigeria’s benchmark oil, sold for around $82 per barrel.

This comes as global demand ignores the Omicron coronavirus variant, despite a slew of supply constraints affecting producers from Canada to Russia.

The commodity is threatening to exacerbate the inflationary pain felt by major consumers, with investment banks calling for higher prices and options contracts invoking the prospect of crude spiralling above $100.

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However, the rally was bad news for fuel-hungry countries like Nigeria, as the Nigerian National Petroleum Corporation (NNPC) now has to pay more in petrol subsidies, which has a negative impact on the federation account.

Nigeria, a key OPEC member, has also struggled to meet its oil allocation from the producers’ group, with flows of the once-vital export grade Bonny Light now moving slowly.

Nigeria is currently pumping around 1.35 million barrels per day, the lowest level in years.

Similarly, Libya, which produced more than one million barrels per day per month last year, is now producing about a quarter of that amount.

Only two countries in the world – Saudi Arabia and the United Arab Emirates – can pump more today than they did in January 2020, before the pandemic really hit demand, according to Goldman Sachs Group’s head of global research.

“The oil market could tighten in the next three to six months as a result,” he said.

Morgan Stanley estimates that observable stockpiles fell by about 690 million barrels last year, with Brent expected to reach $90 per barrel by the third quarter.

“We believe there is more strength ahead,” the bank’s analysts said.

“The oil market appears to be heading for a period with little margin of safety,” he added, “with the prospect of low inventories and spare capacity by the second half, further demand recovery into 2023, and still limited investments being made.”

Rising prices would be a major setback for US President Joe Biden, who spent a great deal of time and effort orchestrating a global release of strategic petroleum reserves, according to Bloomberg.

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Mr Michael Tran, a commodities strategist at RBC Capital Markets, said, “The bullish sentiment has regained the narrative.”

“With improving demand, tightening inventories, and doubts about OPEC’s ability to ramp up even more, the directional arrows of progress point to even more optimism,” he added.

Oil price fluctuations are felt more acutely and quickly than those of any other commodity because they are immediately reflected in the cost of end-products such as gasoline, diesel, and jet fuel.

While Nigerians wait with bated breath for the planned removal of subsidies in the New Year, riots erupted in Kazakhstan earlier this month after the government allowed the price of liquefied petroleum gas, a key road fuel, to skyrocket.

As countries recover from the Covid-19 pandemic, central banks will keep a close eye on prices in order to keep inflation under control while also encouraging economic growth.

In terms of petroleum demand, the Organization of Petroleum Exporting Countries (OPEC) and its producer-nation allies have expressed confidence that the virus will not derail the recovery, and that they will stick to their plan of gradually restoring output that had been halted during the pandemic.

While the company still believes markets are on the verge of oversupply, its forecasts for this quarter have become less pessimistic as supply growth from competitors disappoints.

In the first quarter, the alliance expects an excess of 1.4 million barrels per day, which is 25% lower than its forecast a month ago. Global consumption is expected to rebound by 4.2 million barrels per day this year, with demand exceeding 100 million barrels per day by June.

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However, a deep freeze in Canada and the northern United States is disrupting oil flows, driving up prices even as American stockpiles fall, despite Russia’s failure to increase oil output last month despite a generous OPEC+ quota increase.

Along with headline prices, the oil forward curve has shifted to the bullish side, with more-immediate contracts commanding higher premiums than later months, indicating that buyers are willing to pay more to secure barrels sooner.

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