The world markets is bleeding and Oil is the major reason. Oil prices have hit a four year low as major oil producers like Saudi Arabia has refused to panic because ironically a fall in oil prices favours them. You see it’s not like that they wouldn’t want oil price back above $100 but that is not the battle. The battle is America’s shale revolution and gaining market share which is why they don’t mind increasing oil supply thus crashing prices in its wake. A lower oil prices they say, will disincentives more shale producing rigs. Unfortunately, this battle is for the mighty and not good for struggling nations like Libya, Iraq, Angola and…well, Nigeria.
Reuters reports Libya had pressured other OPEC members to cut oil supply so as to reverse the current slide in prices. However Saudi Arabia would not bulge, telling whoever cares to know that a fall in prices suits them well. So where does that leave Nigeria which at a Benchmark of $77.5 ($78 proposed next year) per barrel, there is not much buffer for our beloved excess crude account. What will Nigerian authorities do? Will they complain like Libya or perhaps beat their chest like Saudi? This was how Reuters put their response.
NIGERIA AND ANGOLA QUIET
Of the other three African members, Algeria’s oil minister has said he is not concerned by lower prices. Nigeria and Angola have not officially stated their view.
An OPEC delegate from a West African OPEC member said his country was keeping a close eye on prices but was not convinced of the need for supply cutbacks.
“I am not sure it would do any good,” the delegate said, declining to be identified. “We are watching to see how the market will behave.”
So basically, Nigeria has been quiet about all this which is no surprise really. I haven’t seen any official comment from the Minister of Petroleum Resources and neither has the Minister of Finance released an official statement except for a passive comment which she made at a Finance Conference in Enugu. She was quoted as saying
“We have been preaching prudence in the management of oil revenues because whether the price is high or low, with prudence you can’t go wrong,”. Her point basically is that no matter the price of Oil, we still have to be prudent.
It doesn’t require nuclear physics to understand why Nigeria actually doesn’t really care about falling Oil prices. A fall in oil prices means lower subsidy payments and inadvertently higher revenues for the government. They already budgeted over N1trillion next year on subsidy payments. It’s ironic that as a country, we stand nothing to lose or is it gain by falling oil prices all because our refineries doesn’t work to optimum capacity. They might also see this as a ploy to sneak in deregulation after the elections next year but I’m pretty sure Nigerians will not be buying that.
So the game here is to balance the loss of revenue from oil price fall with a reduction in subsidy expenses whilst also hoping that income from taxes and other non-oil exports will rise. Nigeria also has some room to borrow more if we run a deficit after all our new GDP status puts our debt to GDP ratio at a comfortable level to borrow more.