• Tuesday, May 21, 2024
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Oil price decline adds to unease over Nigeria’s economy


Crude oil price have continued a 12 day free-fall, as fears of a supply glut mounts and oil producing countries including Nigeria are getting uneasy.
Africa’s biggest oil producer relies on crude oil sales to fund its budget and is responsible for over 85 percent of the country’s revenue and a fall in revenue will hamper budgetary obligations.
The dip comes three months to the general election and as Nigerian workers demand a 66 percent wage increase.
Low oil prices coupled with Nigeria’s increasing difficulty in finding buyers for its oil could erode trade surplus and further put pressure on the naira.
Meanwhile lower oil prices are starting to weigh on equities as stocks closed the fourth trading session of the week negative, losing 0.76 percent, led by a selloff in large cap blue chip names like Guaranty Trust Bank (-6.5%), Zenith (-3.1%) and Lafarge Wapco (-1.8%).
Similarly, market breadth index was negative with 10 gainers against 21 stocks that declined.
“Nigeria should look at both sides of the balance sheet,” Adeola Adenikinju, energy economics professor at the University of Ibadan, and a member of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria told BusinessDay by phone.

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Adenikinju further said it is important for Nigeria to both cut costs and expand its revenue base. He suggested widening the tax base and selling off public assets like the refineries that the country is not managing well and reducing the cost of governance by curtailing overhead costs.
But these are hardly new counsel. Nigeria’s three refineries have been performing at less than 10 percent of their installed output despite huge sums of money allocated to maintaining the refineries but the government is unwilling to sell them off.
“Another area of waste is the subsidy or under recoveries, Nigeria has to make a decision on why it should keep them,” said Adenikinju.
The price of OPEC basket of fifteen crudes stood at $64.51 a barrel on Wednesday, compared with $67.01 the previous day, according to OPEC Secretariat calculations.
Oil futures are down about 20 percent after putting in a 52 week high early last month. The current dip is the longest falling streak since futures trading began in 1983.
Yet OPEC remained upbeat about its forecast for the oil market. In in its World Oil Outlook (WOO) 2018 released November 14, OPEC said that the world’s primary energy demand will surge by 33 percent from 2015 levels to 365 million barrels of oil equivalent a day (boed) in 2040, with developing economies accounting for nearly 95 percent of this growth.
It also said that India and China are forecast to be the most important contributors to energy demand growth.
“Despite relatively low demand growth rates (especially for coal and oil), fossil fuels are projected to remain the dominant component in the global energy mix, with a share of 75% in 2040, albeit a drop of 6 percentage points from 2015,” OPEC said.
Medium-term oil demand growth—that is through 2023—is expected to average 1.2 million bpd each year, OPEC said in its WOO.
OPEC said energy demand in India and China is expected to jump by 22 million boed and 21 million boed, respectively, by 2040—accounting for more than 50 percent of energy demand growth in developing economies.
After plummeting more than 25 percent since
Oct. 3, oil may however be ready for a rebound, multiple technical studies suggest. Oil halted its longest losing streak on record in New York on Wednesday, gaining 56 cents amid technical support and news OPEC was discussing deeper-than-anticipated cuts in output. West Texas benchmark crude futures had dropped from a closing high of $76.41 a barrel on Oct. 3 to $55.69 on Nov. 13, on concern a supply glut was emerging. One of the main theories in technical analysis is that prior resistance becomes new support, which may be emerging for oil prices.