The International oil benchmark, Brent crude, has fallen to its lowest level this year and below the proposed benchmark for Nigeria’s 2019 budget. The Brent Crude Price, the benchmark oil price used to gauge Nigerian oil sales fell to as low as $60, the lowest seen since November 2017.
It has dropped by more than 20% from a year high of about $86 per barrel back in October this year as the U.S shale producers have double down on production and are pumping more oil creating more supply glut in the market.
In Nigeria, the profitability of most banks is tied to oil prices as a significant percentage of loans by banks are given to players in the upstream and downstream sector of the oil and gas industry.
How this affects commercial banks
Commercial banks in the country have every reason to fret as the global oil prices continue to plunge. If this downward trend is maintained, it could damp the Non Performing Loans of some banks that have huge exposure to the oil and gas industry.
Another tier-one bank, United Bank for Africa’s NPLs reduced to 6.9 percent (N110.40 billion) in September 2018 from 7.2% in 2017 full year while 35 percent of the bank’s total NPLs per sector are to the oil and gas sector in Q3 2018.
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According to the International Energy Agency, it expects non-OPEC output alone to rise by 2.3 million barrels per day (bpd) this year while demand next year was expected to grow 1.3 million bpd.