Several oil-rich nations (Nigeria inclusive) may face looming financial crises as Oil price declined to a 4-month low of $61.99 p/b on Friday, May 31, 2019. This low price was last recorded in February this year.
Global oil prices which have been on a decline in recent days, finally reached a 4-month low of $61.99 p/b as President Trump’s trade policy and the slowdown in the Chinese economy cast doubt on the outlook for global demand.
Understanding the Situation: Despite lower supplies which should have encouraged price hike, crude prices fell from about $75 per barrel in April to less than $63 per barrel on Friday. As noted above, this was partly caused by U.S President Donald Trump’s rampaging trade wars.
Apparently, news about poor economic data from China and yet another trade tariff from the USA negatively impacted both the equity and commodity markets; specifically oil prices.
The Chinese data showed that the country’s manufacturing activity shrank more than expected, making investors wonder how much Chinese growth is slowing and how the U.S.-China trade war will weigh on economic growth in China and the rest of the world.
Meanwhile, President Trump disclosed last week that the U.S. will be imposing a 5-percent tariff on all goods imported from Mexico starting June 10, to make Mexico resolve the “illegal migration crisis”.
Why this Matters: Countries such as Nigeria that depend largely on oil proceeds may find themselves in serious financial strains if oil prices continue to decline. For Nigeria, this is particularly not a good time for oil prices to decline, seeing as the country’s 2019 budget was recently signed by the President, even as a lot of money will be needed to implement it.
Any further decline in oil prices will automatically result in a reduction in the revenue allocated to states. This will, in turn, pose economic difficulties across the country; especially so for states with little or non-existent internally generated revenue.
In the meantime, chances are that oil prices could rebound if the tension between the US and China eases up in the coming days.
