Nigeria’s economy managers have cause to worry as Brent crude oil price per barrel hovers around the $60 dollar mark.
Brent crude oil price has rallied from its 02 January low of $54.91 to $60.90 as at 17 January, 8:20 am and has on average hovered around $60 mark since 10 January, according to data obtained from NASDAQ, an American stock market.
Benchmark crude oil price for Nigeria’s 2019 budget is $60 per barrel. An oil price rally would have signalled good tidings for Africa’s biggest crude producer but this is delusory because higher oil prices mean Nigeria is losing time to ditch its bloated subsidy regime, which has created a black hole in the countries public finances and requires low oil prices to make government muster the necessary political will.
Lower oil prices often forces the Nigerian government to undertake painful necessary reforms.
This scenario played out in 2016 when oil prices fell below $40 per barrel in the first three months of that year. Low oil prices cut revenue in half. The situation was further worsened by destruction of oil and gas infrastructure by Niger Delta militants whose campaign shut in a quarter of Nigeria’s oil production.
Nigeria has budgeted $1 billion to sustain the subsidy regime in the 2019 budget.
“Higher crude oil price will affect the price of petroleum products in the international market, which means Nigeria will pay more to subsidise the import of petrol” Diran Fawibe, chief executive officer of International Energy Servies Limited said on a phone interview.
Oil subsidy or under recovery as the Nigerian National Petroleum Corporation (NNPC) prefers to call it, has been rising astronomically within the last 24 months. A recent BusinessDay investigation found that between 2006 – 2015, the NNPC claimed N170.60 billion as under recoveries while it claimed N632.20 billion in twos alone (2017 and 2018), a 217 percent jump.
