Africa Press-Nigeria :
Between January and April, oil price has lost at least $27 per barrel. As at the end of January 2020, Brent crude sold for $63 per barrel as against between $31 and $33 per barrel this month, despite record production cut of 9.7 million barrels per day by the Organisation of Petroleum Exporting Countries (OPEC) and its allies non-OPEC (OPEC+) after the reconciliation of Saudi Arabia and Russia. At the peak of the price war between Saudi Arabia and Russia, Brent crude fell below $25 per barrel.
The coronavirus pandemic also led to an abysmal drop in oil consumption as borders were closed, travel restriction activated across the world, industries and manufacturing concerns as well as the aviation sector were shut, all in a bid to contain the spread of the virus. Currently, oil firms have begun to cut their capital and operational expenditures with likely projects deferments and cancellations.
For Nigeria, the government had since rebased its oil benchmark from $57 per barrel to $30 per barrel and expects oil prices will not fall below the rebased benchmark following the renewed OPEC+ cooperation and production cut. To industry players, there are pains and gains of the fall in oil price.
Oil producers
To the Secretary-General of African Petroleum Producers’ Organisation (APPO), Dr Omar Farouk Ibrahim, the plunge of oil prices to about $20 per barrel portends a difficult period not only for Nigeria, but all oil producing countries in Africa. 2020, he said, really will be difficult for Nigeria and other oil producers on the continent and will require drastic measures by the governments to keep the economies afloat and ameliorate the impact of reality on the citizens.
The APPO chief said, from look of things, the price of oil will not pick up but even go further down below $20 per barrel. He explained that the collapse of the agreement also known as the ‘Declaration of Cooperation’ between the OPEC and its allies, including Russia, which resulted in the price war between Saudi Arabia and Russia is also a big blow to the global oil market. It is a good development that the ‘Declaration of Cooperation’ was recently resuscitated and it is expected to give some hope to the industry.
But considering the supply glut caused by the price war and worsened by decline in oil demand caused by the pandemic globally, there are lots of crude cargoes looking for buyers and a lot more in storage. It will take time for the oil price to pick up even if it doesn’t go below $20 per barrel, he added.
“If it is just the problem caused by COVID-19 pandemic, the oil market would have recovered by the end of 2020. In the last one month, oil produced and put in the storage is enormous due lack of demand. Therefore, even if COVID-19 problem is solved today and oil price stops falling, it will be difficult for the oil market to recover to what it was last year.
For Nigeria, we need to brace up for austerity measures. The 2020 budget was premised on $57 per barrel benchmark with oil production of between 2.1 and 2.2 million barrels per day. The government has revised its budget oil benchmark to $30 per barrel from $57 per barrel while oil price has dropped to about $25 per barrel. Actual production has also gone down because there is no demand for oil. This implies that half of government’s expected revenue has gone.
“The reality is that it is not going to be easy. If things go on like this, the government needs to act very fast to introduce austerity measures, otherwise, the situation will have unpleasant consequences in the long run. It is good that part of the funds meant for 2020 budget implementation will come from loans. If the entire budget implementation was hinged on revenues from oil and internal sources, it would have been disastrous.
The loans can be used to cushion the effects of the collapsed oil price. Remember that the situation now is not only about oil, the industries and manufacturers are not producing. Also, revenue from the Nigeria Customs Service and Federal Inland Revenue Service, among others, will be negatively impacted.
“We must be grateful that through right policies and actions, a lot has been put in agriculture. Most of the rice consumed in Nigeria are grown in-country, it would have been terrible if it has not been done. Our consumption pattern as a country is oriented towards import.
We imported about 80 per cent of our rice in the past and even sugar and other items, which took a good part of our foreign exchange (forex). Today, we have gone far in terms of rice production and this cuts across every part of Nigeria.
“Meanwhile, the government doesn’t have the money to do all expected of them by the citizens, hence Nigerians should be patient with the government, especially at a period like this. We are very critical people but we need to be aware that there is no perfect government anywhere in the world, especially in democratic environments.
“We will overcome this situation, but let us use this opportunity to learn how to live our lives well and do things properly, look inward and see what we have learnt from the situation and make corrections.”
