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Concerns grow over economy as oil hits $51

By BusinessNews Staff on January 8, 2015

As global oil prices extended their declines on Tuesday, plunging to fresh five-and-a-half year lows, the need for Nigeria to cover the potential revenue gaps and diversify the economy has been stressed.

The global benchmark Brent, against which Nigeria’s oil is priced, fell on Tuesday by $1.92 to $51.18 per barrel, about $14 lower than the country’s budget benchmark price for this year. The United States benchmark West Texas Intermediate fell to $47.59 per barrel, its lowest since April 2009.

For close to a month now, Brent has been trading below the 2015 budget benchmark price of $65 per barrel, after hitting a peak of $115 in mid-June 2014.

According to analysts, high oil output from Russia, Iraq and the United States, a stronger dollar, and concerns about the Greek economy are among the factors keeping up the downward pressure on prices.

The continued decline in oil prices had recently forced the Federal Government to adjust the benchmark price for the 2015 budget twice from $78 to $73, and later to $65.

The Chief Executive Officer, Gacmork Nigeria Limited, Mr. Alex Nexin, who noted that the budget benchmark price was high considering the current price trend, said it should be between $50 and $60 per barrel.

“Nigeria has to wake up. We have not woken up to imbibe the culture of other petroleum-rich countries that have developed their economy. There are a lot of leakages in our system,” he said.

The Founder of Mak Mera Group and former Director of Research, Organisation of Petroleum Exporting Countries, Chief Mike Olorunfemi, stressed the need to diversify the Nigerian economy, which had relied largely on oil and gas for decades.

“We have not diversified our economy. Unlike Nigeria, Indonesia is not crying because they have diversified their economy. The question is, of what use have we made our oil? Oil is a depleting resource. Once you have an easy source of income, the temptation is to relax, and that is what we have done. Norway also has made the best of its oil resources,” he said.

An energy specialist at Ecobank, Mr. Dolapo Oni, said the price trend was still downward, adding, “The key decision for Nigeria is on how to cover the potential revenue gaps – either by borrowing more or cutting our expenditure budget. I believe the Finance ministry is considering a combination of both strategies.

“This is also a crucial time to look at how to revitalise the local refineries to reduce fuel imports and improve local crude oil consumption. If we can raise our refinery capacity, we can reduce the impact of lower market share at least.

“We can’t do much on the price front but if we can raise local crude oil consumption and domicile the financial transactions in our banking system, even if they remain in dollar terms, we can mitigate shocks like this to a larger extent.”

The Minister of Finance, Dr. Ngozi Okonjo-Iweala, had in the overview of the 2015 budget proposal on December 17, 2014, said, “We recognise that prices might still fall further but we do not intend to revise the price (budget benchmark) further down as price intelligence indicates that prices might average between $65 and $70 per barrel in 2015.

“This is, however, not an ironclad guarantee. So, if prices fall outside this range, the government will have to introduce further measures.”

Okonjo-Iweala, who noted that 2014 was a difficult budget year, said fiscal outlook over the mid-term 2015-2017 period would also be equally challenging.

“As the international oil market evolves, crude oil prices may probably never reach $100pb again. So, Nigeria really needs to continue the diversification drive and ‘reset’ the mind of every Nigerian to the emerging non-oil economy we need to build,” she said.

[Punch]

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