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Falling oil price puts pressure on Nigeria

By on December 19, 2014

As the price of international benchmark Brent crude, against which Nigeria’s oil is priced, has plummeted below $60 per barrel, experts have highlighted the increasing challenge facing the Nigerian economy.

The price of Brent crude oil fell to $58.50 per barrel on Tuesday for the first time since May 2009, from a little above $61 on Monday. It hovered around $59 on Wednesday.

The further slide in oil price on Tuesday was said to have been triggered by news of a fall in industrial activity in China, the world’s second largest consumer of oil, putting more pressure on oil-exporting countries including Nigeria.

The price of OPEC basket of twelve crudes, which include Nigeria’s Bonny Light, stood at $55.91 per barrel on Tuesday, compared with $57.92 on Monday, according to OPEC Secretariat calculations.

For 2014, the Federal Government of Nigeria had based its N4.5tn budget on a benchmark oil price of $77.5 per barrel, but oil price had in November fallen below the benchmark, denying the country accretion to the Excess Crude Account.

The ECA, where money over the benchmark oil price is saved, provides a cushion when oil prices fall or extra cash is needed for spending on infrastructure.

The continued decline in oil price has forced the government to adjust the benchmark price for 2015 budget twice from $78 to $73, and recently to $65.

The Managing Director and Chief Executive Officer, Financial Derivatives Company Limited, Mr. Bismarck Rewane, in a telephone interview with our correspondent, said, “We were gasping at $100. We were struggling at $70. At $60, this is what we call under-water situation. We are suffocating. That is where we are. To be honest, it is going to go lower than that.”

“The Russians devalued their currency on Tuesday by 13 per cent. So the cumulative devaluation of the Russian ruble is now 43 per cent. We have done 9 per cent. The point is that we still have a little bit of more adjustment to do.

At the fiscal side, we need to do that.

“The price of refined petroleum products has to come down. You cannot tell me that when it was $108 per barrel, you were selling at N97, now it is $58; you are also selling at $97. Obviously, the price of petrol has to come down to maybe N75 or so. State governments will need to make their own adjustment. About five or eight of them cannot even pay salaries right now. So what do they have to do? First and foremost, they need to cut expenditure.

 

[Punch]