Social Login

Remember me
News

Politics Of Global Oil Price And The Nigerian Economy Featured

Post by
06 February 2015
Rate this item
(0 votes)

The free fall of oil price in the international market has been attributed to international politics. In this piece, Bukola Idowu and Chika Izuora, examine its implications on the Nigerian economy, which is heavily dependent on oil as its major source of foreign exchange.

The proposed 2015 appropriation bill as presented to the National Assembly last year is no longer realistic considering the persistent decline of crude oil price in the international market. Supply had outrun demand as new producers joined the supply chain and the United States of America, a major oil importer joined the exporting trade to drive down the price of the commodity.

The price of crude oil which started out last year at $110 per barrel began a steep decline in June 2014 and contrary to some opinions that the oil price would not go beyond $50pb, it has continued its freefall to $46pb as at Wednesday last week.

The politics of global oil prices
Oil price had always been an instrument of power as the formation of the Organisation of Petroleum Exporting Countries (OPEC) had formed a cartel that triggered the first real rise in price of oil in 1973. From around $1pb to $40pb.

Likewise, the crash of the oil price since June has been linked to a glut in the oil market and the politics of global power. According to the managing director and chief executive of Sterling Bank, Mr Yemi Adeola, “the fundamentals of oil industry do not justify what has happened. What has happened I can tell you authoritatively is purely political.

“The fundamentals of oil industry does not justify the sharp fall in oil price that we have seen and it will get to a point after all the political issues have been resolved, it will bottom out and it will start bouncing back.”

For senior consultant and chief executive with RTC Advisory Services Limited, Mr Opeyemi Agbaje, “we are seeing a replay of the oil glut of the ‘80s and the oil cartel OPEC has lost market because it now accounts for around 30 per cent of the global supply and it cannot dictate the oil price with that percentage.

“Just as before there is an over-supply of the commodity because of new technology, aggressive oil exploration across the world, the United States, the USSR and other non-OPEC members and today they are the largest suppliers. The fundamental is by the Saudis and my hypothesis is that the Saudis strategy is equally by politics and economics.

“They have decided to let the price fall. It wants to put shale oil and gas out of the market, it wants to make those other oil wells that are expensive to produce unbuyable so that all those shale producers will collapse. There is also the politics side of it undermine Iran, undermine Nigeria for geopolitical reasons help America undermine Russia.”

Representatives of Saudi Arabia, the United Arab Emirates and Kuwait have stressed many times in the past six weeks that the group will not curb output to halt the biggest drop in crude since 2008.
Qatar’s estimate for the global oversupply is among the biggest of any producing country. These countries actually want and are achieving further price declines as part of an attempt to hasten cutbacks by U.S. shale drillers, according to Barclays Plc and Commerzbank AG.

Crude fell 48 per cent last year and has declined 35 per cent since OPEC affirmed its output target on November 27. That decision, while squeezing revenues for OPEC members in 2015, aims at preserving their market share for years to come.

According to analyst at consultants IHS Inc. in Washington, Jamie Webster, “the faster you bring the price down, the quicker you will have a response from U.S. production that is the expectation and the hope. I cannot recall a time when several members were actively pushing the price down in both word and deed.”

Nigerian economy takes the heat When the co-ordinating minister of the economy Dr Ngozi Okonjo-Iweala, presented the 2015 budget before the National Assembly last year November, she was optimistic that the price of crude oil in the international market will hover around $65 and $70 per barrel, thus the oil benchmark was fixed at $65 and oil production was estimated at 2.27 million barrels per day.
Acknowledging that the 2015 budget had been difficult to prepare, the CME envisaged “that prices might still fall further but we do not intend to revise the price further down as price intelligence indicates that prices might average between $65 and $70pb in 2015.”
The income from oil according to the budget presented by the finance minister is put at N1.918 trillion or 53 per cent of the N3.602 trillion estimated revenue for the year based on the $65 benchmark, while the remaining N1.684 trillion or 47 per cent will be sourced from the non-oil sector.

This declining price of oil at the global market has however, made the current appropriation bill that is yet to be passed unrealistic as the country’s estimated revenue which has shrank by 30 per cent and is still shrinking when the benchmark of $65pb is compared to the current price of $46pb.

Okonjo-Iweala presenting the budget to the National Assembly last year explained that the $65pb benchmark represents a $13 drop per barrel from the $78pb, which is about N142 billion of FGN budget revenue, originally proposed to the National Assembly.

“To partly make up for this, we have taken steps in this Budget to introduce some short-to-medium term revenue and expenditure measures. Most of these measures are designed to kick-in towards the beginning of second quarter 2015 and will considerably boost the ratio of non-Oil revenues to Oil revenues.”

While the budget proposes a fiscal deficit of N755 billion, the CME said there would be a drop in domestic borrowing from N571.9billion last year to N570 billion this year.

However, with the new tax initiatives coming on board by the second quarter of the year, that is after the general elections, there will be a funding gap. This will invariably call for more borrowing.
Debt has in recent times been rising, calling for caution so as to avoid the repeat of the Paris Club debt which in not too long a past was forgiven. Nigeria has also been subtly accumulating debts in recent times, with domestic debt rising from N4.55trillion in 2010 to N7.65trillion as at September 2014.

In like manner debt servicing fees have also taken an uptick trend rising from N828 billion in 2013 to N943 billion in 2015, gulping an alarming 22 per cent of the aggregate expenditure.

Considering the percentage that recurrent will be gulping from the total expenditure, it is without doubt that part of the recurrent expenditure in the 2015 Appropriation Bill will be funded with debt.
The budget deficit, which should mainly finance capital projects in line with the provisions of the Fiscal Responsibility Act (FRA) is higher than the capital expenditure budget. This means, as presented, the executive is seeking approval from the NASS to borrow N387 billion to finance the entire capital budget and the remaining balance, about N368 billion of the proposed deficit, will be spent on recurrent items.

The government is also planning to draw down N80 billion from the excess crude account (ECA), which is only possible if the oil price rises above $65 per barrel oil benchmark proposed in the budget.
In other words, if oil prices stay below $65 per barrel, there will be more borrowing. If the volume of crude oil sold falls short of targets, there will be more borrowing. If the overly optimistic non-oil revenue generation target, which the government has failed to raise successively, falls short, government’s borrowing spree will continue, to meet its obligations.

Impact on the Naira
The nation’s currency will also face a bashing as the naira currently trades at around N185 to the dollar at the interbank and close to N200 at the parallel market, a wide gap compared to the CBN rate of N168 to the dollar.

While many Nigerians are hoping for a better tomorrow for the local currency, the outside world and analysts are seeing the naira falling to as low as N250 to the dollar this year.

Forward trades in the United States are currently hedging the naira at around N243 to the dollar. Consequently if the value of the naira falls that low, Nigerians should expect even a more difficult time.
The perception of the Nigerian economy is also not helped by the political tension that has gripped the country.

Inflation has been on the rise, with December consumer price index rising to 8 per cent from 7.9 per cent and it is expected to further rise.

As an import dependent country which has yet to diversify its economy, the country will be facing a serious dilemma aside the political outcome if the oil prices continues on its free fall.
Already some economic analysts such as the Lagos Chamber of Commerce and Industry have anticipated that the country’s inflation rate will cross the double-digit mark in the first half of 2015 as the combined austerity measures introduced by the government and tighter monetary policy of the Central Bank of Nigeria will put additional pressure on consumer prices.

LCCI in its 2014 Economic Review and Outlook for 2015 released recently noted that with the unfolding oil price slump and the consequent exchange rate depreciation, it was plausible to predict higher inflation conditions for this year.

Inflation rate in the country closed at eight per cent in December 7.9 percent in November, according to the National Bureau of Statistics.

“There will be pressures on production and operating costs across sectors. High cost of imports will also be a major factor. As a result of the import-dependent character of the economy, the sharp declines in exchange rate will naturally push up the operating costs of enterprises in the economy. Many firms are already feeling the heat across all sectors,” the LCCI said.

It noted that in the past few weeks, the naira exchange rate had depreciated by about 11 per cent in the interbank market and over 12 per cent in the parallel market, adding that the impact of the depreciation on operating costs would be very profound in 2015.
According to the group a natural outcome of the depreciating exchange rate in an import-dependent economy is inflation. Cost-push inflation will begin to manifest in the next few weeks of 2015. This will be driven by high cost of production and high cost of imported finished goods. The tight monetary policy may continue into the 2015 and this will keep the interest rate high in the economy.

Conclusion
We expect a very tough year for the government and citizens this year on the backdrop of the falling oil price, anticipation of further devaluation of the naira and uncertainty that usually characterised an election year.

We implore the government, especially at the centre, to diversify the economy away from the mono cultural one that we have contended with over the years. Efforts should be made to harness opportunities in other sectors of the economy so that we will not be affected by the vagaries of the international oil market which happens from time to time.

Read from source...

Read 32569 times

727800 comments

  • Comment Link Vada Friday, 27 May 2016 20:50 posted by Vada

    The finest feature within the cheat is automobile goal considering that it lets you detect every single round
    you striking.

  • Comment Link Jack Friday, 27 May 2016 20:49 posted by Jack

    I don't even know how I ended up here, but I thought this post was good.
    I don't know who you are but definitely you are
    going to a famous blogger if you are not already ;) Cheers!

  • Comment Link leaky toilet tank gasket Friday, 27 May 2016 20:48 posted by leaky toilet tank gasket

    Just before leaving your residence for an extended period of time, turn off its water provide to prevent potential leaks.

  • Comment Link Marie Friday, 27 May 2016 20:48 posted by Marie

    Thankk yoᥙ for the auspicious writeup. Ιt in facft աas a amusement account
    it. Lօok advance toօ mоre addced agreeable fгom yоu!
    By tҺe wаy, how cɑn we communicate?

  • Comment Link Mervin Friday, 27 May 2016 20:46 posted by Mervin

    Could I have , please? http://www.grogansolicitors.ie/is-it-legal-to-buy-lasix-online.pdf deadlock boil buy lasix online cheap fortnight Michigan Gov. Rick Snyder and others defended against criticism that the $650 million project should be financed entirely with private money because the city currently can't provide basic services and retirees are facing cuts in their pensions. The 18,000-seat arena is designed to be a catalyst for more development and to link downtown and midtown, turning a blighted area into a business, residential and entertainment district.
    http://nicktung.com/?cardura-4mg-xl.pdf powerful doxazosin mesylate tablets 2mg sunshine gap "With this order, it gives us more momentum to look forpotential joint R&D (research and development) efforts for thefuture generation of aircraft," Airbus Chief Executive FabriceBregier told a joint news conference in Tokyo with JAL PresidentYoshiharu Ueki.
    http://plantparadisecountrygardens.ca/ordering-abilify-online.pdf invade indifferent ordering abilify online sly jack It pointed out that the medical professionals it consulted painted a ‘stark picture of the debilitating and often life-threatening effects' of alcohol misuse. These professionals argued that the link between alcohol and sport ‘should be severed'.
    http://dimalantadesigngroup.com/what-drug-class-is-strattera-in.pdf network strattera x ritalina tunnel This meta-analysis of randomised controlled trials found that there was a statistically significant increase in bone mineral density at only one site (femoral neck) through giving vitamin D. This effect was very small, and was reported to be unlikely to be clinically significant at preventing osteoporosis or fracture.

  • Comment Link Victoria Friday, 27 May 2016 20:46 posted by Victoria

    Could I have an application form? http://spahikari.pl/can-you-overdose-on-hydroxyzine-pamoate.pdf oblige hydroxyzine hydrochloride 25 mg oral tablet assumption frighten Patriota dismissed any changes in the "broad" relationsbetween Brazil and the United States. But asked whether U.S.explanations had satisfied the Brazilian government, he toldreporters, "They haven't been satisfactory so far."
    http://www.grandduke.com/?buy-robaxin-750.pdf mineral buy cheap robaxin weeping scare * Vivendi has hired Societe Generale andCitigroup C.N as lead banks to prepare a stock market listing ofSFR, its struggling French telecoms unit, as it seeks to remakeitself as a media group focused on music and pay-TV, a sourcesaid.
    https://www.mollyscradle.com.au/buy-amoxicillin-online-cheap.pdf oblige cheap generic amoxicillin sunset A government security official in Benghazi, Mohammed Hejazi, said the jailbreak happened Saturday at Koyfiya prison, as protesters stormed the offices of Islamist-allied parties in Libya's main cities.
    http://www.nomadphotoexpeditions.com/?cost-of-priligy.pdf confused priligy need prescription living According to the Times, the decision to delay the cap on costs was made because many employers said they needed to upgrade their computer systems. The issue was they used different systems to administer both medical coverage and drug coverage, and they were not set up to "aggregate" all the money an individual spends out of pocket. 

  • Comment Link Luciano Friday, 27 May 2016 20:46 posted by Luciano

    How much is a First Class stamp? http://daproim.com/index.php/buy-valtrex-walmart.pdf borrowed foul is buying valtrex online legal starve favor At the same time, being around animals has been shown to increase a person's well-being. The American Heart Association released a study this year that showed people who own pets have improved cardiovascular health. Animals often are used to help children with special needs or in visits to hospitals. Their presence can abate loneliness, increase altruism and reduce anxiety.
    http://www.opusdesign.nl/can-i-buy-zyban.pdf visible hair is there a generic zyban baggage restricted Other big brands have sussed that out too. Two-thirds of Vietnam's 90 million population are under the age of 30, its cities are swelling and 34 percent of its people are internet users within easy reach of Western marketeers.
    http://plantparadisecountrygardens.ca/ordering-abilify-online.pdf minded order abilify online canada pearl In recent years, officially stated Government policy has been that the maximum pay for senior managers in public hospitals should not exceed €145,000. However, it is now apparent that this earnings ceiling has been regularly breached in the voluntary sector.
    http://www.environewsnigeria.com/does-wellbutrin-xl-come-in-100mg.pdf skin supplement buy wellbutrin no rx tales clergyman "Today is a day many in [Boston] thought would never come," said U.S. Attorney Carmen Ortiz. "So many people's lives were so terribly harmed by the criminal actions of Bulger and his crew, and today's conviction does not alter that harm, and it doesn't lessen it. However, we hope that [the victims] find some degree of comfort in the fact that today has come and Bulger is being held accountable for his horrific crimes."

  • Comment Link Sierra Friday, 27 May 2016 20:46 posted by Sierra

    What sort of music do you listen to? http://www.lisamhayes.com/buy-finasteride-australia.pdf avalanche squeal where is the best place to buy propecia online superior Instead, the White House said he looks forward to working with Asian allies and returning to the region at a later date. It is the third time domestic issues have forced Mr Obama to cancel trips to Asia.
    http://plantparadisecountrygardens.ca/ordering-abilify-online.pdf overcome notwithstanding order abilify online cheap
    glittering With 21 percent of S&P companies having reported, 61.5percent have topped profit expectations, a rate slightly abovethe historical average. But only 52 percent have toppedexpectations on revenue, below the historical average of 61percent.
    http://atomsystem.com/cheapest-accutane-online.pdf jug accutane purchase uk invention decipher “We were faced with a life-threatening situation, and my husband was forced under the circumstances to take the actions he did in order to protect the lives of our entire family,” Lien’s wife, Rosalyn Ng, said in a statement issued on Thursday.
    http://jjautomation.co.uk/amoxicillin-uk-buy.pdf null nancy buy amoxicillin online uk encyclopedia bat But on the whole, "immigration, multiculturalism, multi-nationalism — that's who they are," said Zogby, explaining that Republican politicians are still preoccupied by the question of "who is the real conservative."

  • Comment Link Diego Friday, 27 May 2016 20:46 posted by Diego

    About a year http://averittair.com/buy-tetracycline-acne.pdf fitting buy tetracycline hydrochloride 6.4 oz packets eliminate utmost It's hard to see Palin, now a commentator for Fox News, going through the slog of running in a crowded GOP primary for the Senate next year. Then, if Palin became the nominee, she'd face a contentious race against Begich. But we're sure there's more to come.
    http://dimalantadesigngroup.com/what-drug-class-is-strattera-in.pdf shops atomoxetine buy online uk distinguished drawer In a statement, Bahrain's Head of Public Prosecution, Nayef Yousfi, said police investigations showed Marzouq had spoken at many forums promoting terrorism, the most recent of which was a speech at Saar district west of the capital Manama on September 6.
    http://www.anthonybarrow.co.uk/buy-alli-pills-online-uk.pdf furs issues cheap alli pills uk shy Finally, be prepared to agree to disagree. You are not always going to be on the same page, that’s what makes you an individual. You don’t have to always agree, but you do need to accept the other person’s point of view.
    http://webdesign-newcastle.co.uk/buy-clomiphene-citrate-online-uk.pdf deserter buy cheap clomid online uk
    airborne “It’s hard, you know,” he said. “Always, you put the uniform, there’s pressure. But you have to figure out how you can control that pressure. So that’s what I try to do all the time. I put the uniform (on) and there’s pressure, (but) I hope that we start hitting tomorrow.”

  • Comment Link Julian Friday, 27 May 2016 20:46 posted by Julian

    The National Gallery http://www.spencersc.com/NewSite/adapalene-cream-wrinkles.pdf pier order differin gel online decoration hi This kind of denialism is only to be expected of a CULTURE based on Christian philosophy. Other cultures based on Hindu-like philosophy, like India and the Far East have done better and survived for thousands of years. Not sure of the FUTURE of these cultures too as they are under pressure to be more materialistic and consumerist. All this is due to the CAPITALIST market forces driven by the media, advertising etc.
    http://www.manofaranfudge.ie/where-can-i-buy-levothyroxine-over-the-counter.pdf granddaughter additional levothyroxine buy online usa
    breed come In a brief circular, the central bank said its aim was toreview and study local banks' exposure to Turkey, the bankerssaid, declining to be named because they were not authorised tospeak publicly to media.
    http://canadianspecialevents.com/order-plendil.pdf equal dare order plendil online cooking soil Since then Egypt, whose political transition has repeatedly stumbled, has been rocked by near-daily protests, bombings and clashes in which hundreds have died in the worst civil violence in the nation's modern history.
    http://webdesign-newcastle.co.uk/buy-clomiphene-citrate-online-uk.pdf microscope agent buy cheap clomid online uk
    harmless NHS England said that all doctors and pharmacists had been told not to restrict access to testing strips. However, many of the respondents to Diabetes’ UK survey, which consulted 2,000 people with diabetes, said that their GP had told them restrictions were in place because of policies issued by local health managers.

Leave a comment

Make sure you enter the (*) required information where indicated. HTML code is not allowed.

Our Office

+234 803 309 1270
144A, Aba-Port Harcourt Expressway, (By St. John's Busstop), Port Harcourt, Rivers state, Nigeria.
admin@remmyorthon.com; remmyorthon@gmail.com

Popular News

Our Vision

The vision of ROEC is to become the leading indigenous company with formidable track record in proffering oilfield tools procurement and supply solutions to the Nigerian oil and gas industry.

OUR REGION

Our services are concentrated in the Niger Delta region and beyond.

Request a quote