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 51529 times

1042458 comments

  • Comment Link Rodolfo Saturday, 01 October 2016 11:16 posted by Rodolfo

    This World at Arms Hack Tool hass a full help forr all windows model akin to windows
    xp, windows vista, home windowes 7, windows eight, windows eight.1.
    Additionally this hack instrument is supported by both 32bit and 64bit operating system.

  • Comment Link Robby Saturday, 01 October 2016 11:15 posted by Robby

    As men get older they could eat a far more unhealthy diet or as their metabolism slows, the diet they've always followed could result in weight
    gain.

  • Comment Link Carlo Saturday, 01 October 2016 11:13 posted by Carlo

    I'm extremely impressed with your writing skills and also together with the layout on your weblog.
    Could this be a paid theme or did you customize it yourself?

    In either case keep up the nice quality writing, it really is rare
    to find out a nice blog this way one today.

  • Comment Link Warner Saturday, 01 October 2016 11:12 posted by Warner

    Orlando Hernandez, a frequent customer and
    local music fan says, 'All musicians start off local and only
    a hand full are fortunate enough to make it to tour
    national. Arnold "The Austrian Oak" Schwarzenegger turned me on to this front-delt punisher.
    Components which are normally built into individual tower or rack servers to provide things like cooling, ventilation, power, networking, etc, are instead shared among blade servers in an enclosure,
    allowing for more management, energy and space efficiency.

  • Comment Link Alena Saturday, 01 October 2016 11:12 posted by Alena

    En nuestros campamentos de inglés en verano, impartimos el inglés atendiendo sus inquietudes, motivaciones y necesidades.

  • Comment Link Sima Saturday, 01 October 2016 11:11 posted by Sima

    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're going to
    a famous blogger if you are not already ;) Cheers!

  • Comment Link Ruben Saturday, 01 October 2016 11:11 posted by Ruben

    What company are you calling from? zithromax take to work Also, it's priced much higher than capable Android competitors like the Nexus 7, and indeed it’s a touch dearer than even the iPad mini (which boasts all the great tablet apps that come with iOS). As we’ve said, there are good points here, but ultimately the Tab 3 8.0 fills a void that may not exist – most folks will be better off with an iPad mini or the much cheaper Nexus 7.
    effexor xr patient reviews
    Snow's ruling issued Wednesday outlines the role of the monitor and of community involvement and details some of the other internal steps the Sheriff's Office must take to demonstrate compliance, including creating an "implementation unit" that would serve as a liaison between the ACLU, the monitor and the Sheriff's Office.
    zovirax cream
    Helgen and his colleagues linked the GenBank entry back to an animal that traveled through several different city zoos in the 1970s, including Louisville, Tucson, Salt Lake City and Washington. It ultimately passed away in the Bronx Zoo in New York City.
    prix kamagra oral jelly The committee has held 11 hearings and listened to testimony from 41 witnesses on the inefficiencies and failures of the housing finance system. Many of the witnesses noted that the housing crisis and financial crisis of 2008 began with Fannie and Freddie.
    what is the drug elavil used for Nelson is expected to rule Wednesday morning on the admissibility of both the animation and the text messages. She is also expected to look into whether or not the defense violated witness sequestration rules after it was revealed that a defense witness sat in the courtroom against court rules.
    risperdal 1 mg 100 ml solsyon yan etkileris "The level of functionality they're offering today is worse than we might have anticipated. I expected a level where you could at least get to the point of shopping," said Austin Bordelon, an analyst with healthcare consulting group Leavitt Partners, who monitored federal and state marketplaces through the day. "But really, you just can't get through the door."

  • Comment Link Sofia Saturday, 01 October 2016 11:11 posted by Sofia

    I'm a housewife bimatoprost precio espaa Royal Mail, led by Moya Greene, pictured, could lose the rights to use symbols of the monarchy although the use of the Queen’s head is guaranteed for her lifetime, the sale prospectus revealed. The Royal cipher on post boxes and the crown on stamps could be removed under certain circumstances including if the firm ceases to provide a universal post service.
    what is ciprofloxacin 500 mg for Bowen was appointed exploration director for the fledgling company, and over the next five years succeeded in expanding its acreage, reserves, production and exploration activity, multiplying its market capitalisation fivefold so that, at one point, Enterprise Oil reached number 35 in the FT 100 index.
    priligy buy uk In the city's statement Sunday, officials in Mayor Michael Bloomberg's office said "the Electric Zoo organizers have worked with City officials to reduce health risks at this event, but in view of these occurrences, the safest course is to cancel the remaining day of the event."
    cumpara ginseng Russia, which has veto power in the Security Council, couldcite such doubts about proof of culpability in opposing futureefforts by the United States, Britain and France to punish Syriafor any violations of a deal to abandon chemical weapons.
    buy tamoxifen online india However, that means that those browsers, which are developed in a far more open manner than IE, are able to implement new technologies and standards much more rapidly than IE. Capriotti wouldn't confirm any IE development on the latest in browser tech such as ASM.js, which Firefox has and Chrome is looking at adopting; or WebRTC, an HTML5-based real-time communications protocol that eliminates the need for plug-ins like Skype.
    long does 25 mg strattera last The Dow Jones industrial average was down 225.47points, or 1.47 percent, at 15,112.19. The Standard & Poor's 500Index was down 24.07 points, or 1.43 percent, at1,661.32. The Nasdaq Composite Index was down 63.16points, or 1.72 percent, at 3,606.12.
    preisvergleich voltaren schmerzgel 300 g SKF painted a picture of a stuttering economic recovery, andUnion Bancaire Privee (UBP) fund manager Scott Meech also feltthat tentative signs of a gradual macroeconomic recovery meantit was a good time to buy back into European equities.
    pris keppra If he decides to skip Harvey, Collins said righthanded long reliever Carlos Torres will take the start. Torres entered Tuesday night with an 0.57 ERA in 15.2 innings pitched over nine appearances with the Mets.
    does flagyl treat tooth infection The Libyan expert expressed fears the growing influence ofthe Muslim Brotherhood and other Islamists could lead to theemergence of a jihadist zone near the Egyptian border thatfugitive Egyptian Islamists could use as a base against theirhomeland.

  • Comment Link Ava Saturday, 01 October 2016 11:11 posted by Ava

    Would you like to leave a message? how many mg per kg for motrin Providence, whose chief executive is Tony O'Reilly, has amarket capitalisation of around 300 million pounds ($457.8million). The O'Reilly family owns a stake of over 15 percent. ($1 = 0.6553 British pounds) (Reporting by Sarah Young; editing by Jane Baird)
    nexium infusion dosage Last year, Archbishop Martin told Minister Reilly that the current charter of Holles Street, which provides for the Dublin Archbishop to chair the board, is an 'anachronistic structure' that needed to be changed.
    how often can i take ibuprofen for tooth pain Yet they are being treated by our government as a grave threat. They are being captured while flightless from molting, shipped upstate and gassed. All because of the remote possibility that they might endanger an airplane.
    where can i buy metformin and clomid This is another of Great Rail Journeys’ most invaluable selling points. It puts together holidays that you couldn’t replicate yourself in terms of variety or value for money if arranging them independently. There’s a consistent focus on providing a first-class service: hotel accommodation is of a reliably high quality, meals (many of which are included in the cost) are sociable, enjoyable occasions and itineraries are crafted to avoid early starts or late arrivals where possible.
    co-ciprofloxacin and alcohol The study also found that women who worked night shifts only did not have an increased risk of menstrual disruption and subfertility. However, they did have an increased risk of suffering a miscarriage. This pattern was not seen in women who worked night shifts mixed with other types of shift.
    is omeprazole good for gastritis Whether you're a dog lover or not you surely can't help liking this dalmatian jumper on Holly Willoughby. She looks all cosy and autumn ready and we're beginning to think it's time to pack away our summer wardrobe and embrace the back to school feeling that's out there.
    what is the shelf life of ibuprofen 600mg Aug 8 (Reuters) - Top U.S. dairy company Dean Foods Co said it would speed up the closure of up to 15 percent ofits factories in the face of increasing competition and fallingvolumes, as it reported a quarterly loss and warned of moretough times ahead.
    cipla tadacip 5mg The 24-year-old had a press conference Tuesday to announce his decision to forego surgery, an unusual route. He vaguely answered some questions about the injury and the decision at the beginning of the interview on “The Dan Patrick Show” Wednesday.
    para que se usa hydroxyzine pamoate 25 mg In a statement provided by a spokesman for SAC, based in Stamford, Conn., the company said, "SAC has never encouraged, promoted or tolerated insider trading and takes its compliance and management obligations seriously. The handful of men who admit they broke the law does not reflect the honesty, integrity and character of the thousands of men and women who have worked at SAC over the past 21 years. We will continue to operate as we work through these matters."

  • Comment Link Antony Saturday, 01 October 2016 11:11 posted by Antony

    I'd like to pay this cheque in, please can i buy cymbalta online Those yellow flags were by far Sundays biggest annoyance. The Texans were penalized a team record 14 times (for a whole lot of holdings and offsides) for 113 yards on the game. Thats bad&mostly.
    nolvadex wo kaufen House Majority Leader Eric Cantor had previously scheduled avote this week on a continuing resolution, or CR, to fund thegovernment coupled with one to defund "Obamacare," PresidentBarack Obama's signature healthcare reform law set to start upon Oct. 1.
    amoxicillin 125mg/5ml spc He said: “It is a most bitter, shaming and distressing thing that in this former Abbey school a small number of baptised, consecrated and ordained Christian men physically or sexually abused those in their care. All  that can be done should be done for  the victims.”
    zithromax (azitromycine) kopen For the better part of 25 years, I have been working as a photographer to cover global health in many of its tragic arcs. I have traced the devastating spread of AIDS in Asia and Africa, and the deep poverty and malnutrition that stunts growth and takes millions of children’s lives through preventable diseases. I have also chronicled heroic – and recently successful — efforts to lower the number of children who die before their fifth birthday.
    nama generik dari paracetamol Diagnosed with stage 4 lung cancer this past January, doctors have given the 35-year-old San Jose woman less than six months left to live. The news came as a shock to Bulik and her boyfriend of six years, Jeff Lang. Time has been slipping quickly out of her hands, but on Saturday, Bulik was finally able to stop and celebrate life.

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