Falling Oil Prices And Nigeria
NIGERIA is suffering from a severe economic headache, arsing from the falling oil prices. The country is being hit by this worrisome development.
Petroleum exports account for 90% of the country’s total overseas revenue. With insurgents busy blowing up oil facilities in the volatile Niger Delta, Nigeria’s honey comb, and budget deficit projected to hit N2.2 trillion, the All Progressives Congress’ (APC) under the watch of President Muhammadu Buhari, would be increasingly pushed to seek funding overseas as well as explore more tax sources.
Oil prices have fallen from $55 a barrel since the beginning of the year to around $36-$35. This is quite disturbing because of the N3.9 trillion revenue forecast for this 2016, N820 billion was expected to come from crude oil.
For Buhari, ”this huge decline is having a painful effect on our economy. Consumption has declined at all levels. In both the private and public sectors, employers have struggled to meet their salary and other employee related obligations.”
He has pledged to improve tax collection and invest in other industries including mining and agriculture, pointing out that the country’s economy needs to move away from dependency on oil.
In the mean time, unemployment rate is growing, up from 8.2% in the second quarter to 9.9% between July and September going by official figures. Inflation is also rising, hitting 9.4% in September, on fuel shortages and higher food prices.
In spite of all these, President Buhari says he is expecting Nigeria’s economy to grow by 4.4% this coming 2017. As outlined, the 2016 budget was designed to ensure that government revives the economy, delivers inclusive growth to the citizenry and creates a significant number of jobs.
As Africa’s biggest oil producer, Nigeria still lacks sufficient refining capacity, making her to be importing most of her fuel. With the falling oil prices having what Buhari described as, “a painful effect” on the country’s economy, government is already dreaming of importing crude oil from Niger Republic.The aim is to bring Kaduna Refinery and Petrochemical Company (KRPC) into full operation since pumping crude there has been hampered by the activities of insurgents.
Group Managing Director, Nigerian National Petroleum Corporation (NNPC), Dr. Maikanti Baru, who made this known at the weekend, said the move was necessary in view of the difficulty in moving crude oil from the Niger Delta to KRPC. According to the NNPC big boss, government is planning to construct about 1, 000 kilometer crude oil pipelines from Niger Republic to the Kaduna refinery.
Baru was speaking at a town hall meeting with management and staff of KRPC in Kaduna, Northern Nigeria. ”Due to challenges with the aged refinery and crude oil pipelines that had been breached severally, the operations of the refinery has been epileptic. This we are determined to resolve through various intervention methods, including evaluation of alternative crude oil supply from Niger Republic through building of a pipelines of over 1, 000 kilometers from Agadem to Kaduna”, he said.
This initiative, according to him, is being championed by President Buhari, saying it is important to explore alternative crude supply to the Kaduna refinery which has been affected by vandalism of pipelines and obsolescence, assuring that the initiative will reduce downtime of the plant and ensure optimal utilisation.
NNPC has already started engagements with the Nigerien Petroleum Ministerand the Chinese that are operating the field at Agadem. The Agadem oil block is located in the East Niger Rift Basin.
While NNPC is driving the Buhari initiative, it is expected that oil price could jump to $60 a barrel if the Organisation of Petroleum Exporting Countries (OPEC) finalises a cut to production at their meeting in Vienna next week, says the International Energy Agency (IEA). Its Executive Director, Fatih Birol, says that could also trigger further US production and so “put downward pressure on prices again within nine months to a year”.
Prices have been higher in recent days as traders bet on the increased likelihood of OPEC next week securing its proposed production cut of up to one million barrels a day. That will help bring to an end the long-running supply glut, which has weighed on prices for two years.
Market watchers on Sunday said Brent crude edged above $49 a barrel after Russia hinted again at her support for a deal, suggesting she may cut “200,000-300,000 barrels a day” next year. The US counterpart West Texas Intermediate rose to a little above $48 a barrel. Both benchmarks were down 0.9 and 0.8 per cent respectively this morning to $48.60 and $47.60 a barrel.
On Monday, the oil price came within 40 cents of the important $50 a barrel threshold in Asian trading overnight as optimism grew for a cut in Opec production to be agreed next week. The international benchmark Brent crude touched a high of $49.63 before falling back. However, in London this morning, it was still trading well above $49, more than 12 per cent up on last week’s low around $43.50.
Its US counterpart, West Texas Intermediate, was up 0.5 per cent at a little below $48.50 a barrel, a rise of more than 15 per cent from its nadir last Tuesday.
Those lows came amid widespread pessimism over the chances of OPEC finalising their deal to cut as many as one million barrels a day from its production, adding to negativity on global supply after weeks of stockpile builds. But traders have turned more positive on the chances of the deal succeeding after reports indicated Iran, Nigeria and Libya could be exempted from the cuts without scuppering the wider agreement.
Analysts have speculated that the unexpected optimism caused investors to cover their big bets on falling prices – so-called “shorts” – that have been placed in recent weeks. As they get closer to the meeting, threats that they could achieve some agreement sparked a lot of short covering.
The latest fall in oil prices added to Friday’s steep losses as doubts persist over the ability of major producers to agree output cuts at a planned meeting on Wednesday aimed at reining in global oversupply. Monday’s fall came amid choppy trading and after prices tumbled more than 3 percent on Friday on disagreement between OPEC and non-OPEC crude exporters like Russia over who should cut production by how much in order to curb a global supply overhang that has more than halved prices since 2014.
Despite the wrangling, traders said they still expected some form of an output restriction to be agreed this week.
“An agreement is needed to avoid (price) downside. So, the question is what kind of agreement will they do? The market is clearly very nervous… We shall see. I think they will reach some form of agreement,” said Oystein Berentsen, managing director for crude at oil trading firm Strong Petroleum in Singapore.
OPEC will meet in Vienna on Wednesday to decide on the details of a cut, potentially including non-OPEC members like Russia. A meeting between OPEC and non-OPEC producers that was to be held on Monday was called off after Saudi Arabia declined to attend. Saudi Arabia’s Energy Minister Khalid al-Falih said on Sunday that Saudi representatives would not attend the talks originally scheduled for Monday because no agreement within OPEC had been reached so far.
By Akanimo Sampson