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 42539 times

947916 comments

  • Comment Link Joel Monday, 25 July 2016 18:36 posted by Joel

    Ham Radio operators are film stars, missionaries, doctors, students, politicians, truck drivers and typical people.

  • Comment Link Charlotte Monday, 25 July 2016 18:35 posted by Charlotte

    How much is a First Class stamp? buy cheap antabuse The three main UK parties have ruled out a currency union but Salmond has insisted they would negotiate if Scots vote for independence and has said no one could stop Scotland using the pound informally.
    what is the recommended dosage for depakote Morsi, Egypts first freely elected leader, was forcibly removed from office by President Abdel Fattah al-Sisi when he was army chief, following mass protests against Morsis rule
    ondansetron odt For many, current counter-terrorism measures, particularly related to the Prevent strategy, actually lead to greater alienation as Muslims are seen through the lens of security, rather than tackling the scourge of terrorism itself.
    trazodone recreational usage to discuss the ongoing bombing campaign against ISIS, a brutal Sunni Muslim militant group that has beheaded U.S
    does bactrim treat uti His departure is the biggest news out of the SNB in a weekwhere the Swiss franc has hovered perilously above the 1.20franc per euro threshold imposed by the central bank

  • Comment Link Antoine Monday, 25 July 2016 18:35 posted by Antoine

    Sorry, I ran out of credit estrace cream price comparisons The decision means the Morgan County jurors saw no negligence on the part of Trooper Anthony Piercy in the death of Brandon Ellingson
    trazodone hcl 100mg DAVOS, Switzerland - Central banks have done their best to rescue the world economy by printing money and politicians must now act fast to enact structural reforms and pro-investment policies to boost growth, central bankers said on Saturday.
    is bactrim over the counter medicine Ruth Atkins, a communications and engagement manager in the NHS, was injected with the trial Ebola vaccine in her upper arm on Wednesday morning, after a clinical assessment and a blood sample was taken.
    levaquin dosage for community acquired pneumonia Norwegian Kjetil Jansrud, the Olympic champion and gold medal favourite after winning twice this season in World Cup Super-G, finished fourth after hitting the first gate and injuring his left shoulder.
    bactrim ds treat uti CSTC-A’s response also turns up the heat on Afghanistan’s Ministry of the Interior (MOI) to clean up its act.The CSTC-A sets a March 15 deadline for the ministry to upload “100 percent” of the accurate police personnel records into a database under its control, and a January 2016 deadline to make sure that all of that information is integrated with the payroll system managed by UNDP that actually dispenses cash.

  • Comment Link Felton Monday, 25 July 2016 18:35 posted by Felton

    Hello good day precio del vermox plus en mexico A spokesman for the Kurdistan Regional Government (KRG)Ministry of Natural Resources did not respond to phone calls andemails seeking comment
    how to wean yourself off trazodone The Which? survey also showed 99 per cent of the food businesses in the city  which includes not only restaurants but also schools, care homes and bakeries  were assessed by the city council.
    buy bactrim for guinea pigs Recent reports of the possible wounding or even death of self-proclaimed “Caliph” Abu Bakr al-Baghdadi demonstrate that the United States and its allies are making headway in their military struggle against the Islamic State group, even if efforts may need to be redoubled and, indeed, intensified
    coumadin toxicity definition For instance, if you play the interactive episode first, certain elements of the scripted episode portion will be tailored to reflect some choices made in your interactive play through
    tricor singapore He looked great against the Panthers , but this is not the same Carolina team that was a No

  • Comment Link Winfred Monday, 25 July 2016 18:35 posted by Winfred

    How long are you planning to stay here? online prednisone no prescription "That went on quite a few times with other people that kept wanting to know this person who was a foreigner that has come to a place where they have not seen a foreigner before
    depakote er side effects alcohol Officials from Russia and the European Commission, which is mediating the talks, say a deal could be near
    norvasc mg It has sabotaged his ability to establish consistency and continuity with teammates, as well as his trade value if the Nets decide to unload one of their few enticing assets
    prednisone 20 mg 5 days side effects Dry AMD develops slowly over time and unfortunately there are no proven treatments for it, but with wet AMD, which can develop quickly, vision can be maintained and even improved in most cases if caught and treated early.
    bactrim side effects The AFC’s rookie leader in receptions was Pittsburgh’s Antwaan Randle-El, a converted quarterback out of Indiana

  • Comment Link Lucky Monday, 25 July 2016 18:35 posted by Lucky

    I've got a full-time job how does dexamethasone compared to prednisone There are over 87,000 different drink combinations at Starbucks, according to the coffee retailer’s website… but how many of them do you know? From flu remedies to Harry Potter-inspired beverages, we highlight the weird and the wonderful brews and infusions.
    bactrim ds dosing for mrsa Tours of duty for regular soldiers could be extended, but this "could lead to lower morale and more people leaving..
    dose of prednisone for skin rash That, an absence of wage growth and the struggles of Britain’s main trade destination — the euro zone — are combining to push back the likely timing of a rate rise deep into next year.
    buy clomiphene citrate canada "I would prefer us to begin raising rates sooner and raising them more gradually," Philadelphia Fed President Charles Plosser told network CNBC in an interview from a central bank symposium in Jackson Hole, Wyoming.
    para que es el medicamento cataflam dd The combined entity is expected to be spun out toBlackstone shareholders in the second half of 2015.

  • Comment Link Brianna Monday, 25 July 2016 18:35 posted by Brianna

    I'd like to open a personal account novartis clozaril registration form To attract potential donors, the group is offering T-shirts, hats and vinyl stickers “to adorn your laptop, hymn book and more”
    what is levonorgestrel and ethinyl estradiol Cuts to the culture budget led to the closure of the National Museum in 2012, after its employees had gone for a year without pay
    cataflam diclofenac potassium 50mg That’s why even though we have batteries that we can use to do that with, we don’t see a lot of that on the grid because the electricity is not worth that much more when there are many other ways that we can deal with that intermittency than storing it
    prednisone woithout prescription canada Some believe it grew out of a similar "Cold Water Challenge" in North America from last year
    happens coumadin levels too high The relative ease with which the Houthis gained strength in recent months, took over de facto control of the capital and became the country's new kingmaker is remarkable and undoubtedly disconcerting to Yemen's primary backers, the United States and Saudi Arabia.

  • Comment Link Coco888 Monday, 25 July 2016 18:35 posted by Coco888

    Jonny was here trazodone 100 mg overdose 84th St., along with Diane von Furstenberg, Donna Karan, Michael Kors, Valentino and Tommy Hilfiger.
    bactrim ou ciprofloxacino Why is there a cohort of people out there who don't accept facts? We read about the loony flat earthers, the loony anti-vaccine brigade.Flouridation of drinking water falls into this category
    what is the recommended dosage for depakote The range of species that occupy the complex community of hard and soft corals is impressive
    cost of bactrim ds without insurance We never got down to the nitty-gritty of cities, so for Mitt to bring that up when talking to the president is absurd and not who he is.”
    otc prednisone cream Devise a way to clearly explain your interest in the jobs you’re looking at

  • Comment Link Francesco Monday, 25 July 2016 18:35 posted by Francesco

    I didn't go to university how long do depakote withdrawal symptoms last The dueling technological approaches represent more than aphilosophical divide: they hint at how and when thecompanies, competing to expand into a significant new class ofproduct, could put autonomous cars onto the road.
    zofran 4mg odt frequency "For years and years, this has been one of the worst funded theatres, and yet it's expected to be a flagship for the region, and that's what we want it to be
    bactrim ds nursing implications Click onto the pencil icon and this will bring you to the page that you initially used to submit the article, once you are on this page you can make any necessary edits and re-submit.
    ramipril tablets 2 5mg side effects "Engineering of relatively simple organs has already been adopted for a small number of patients and it is possible that within the next five years more complex organs will be engineered for patients using specialised cells derived from stem cells in a similar way as outlined in this paper.
    generic donepezil Speaking of CSAs, many local farmers sell shares of their harvests, which consumers in the community can enjoy

  • Comment Link Cletus Monday, 25 July 2016 18:35 posted by Cletus

    I'd like to tell you about a change of address bactrim ds and warfarin interaction "It's just grown in popularity, and it's a comfort food: people like to chew on a bone."
    order avodart uk Out of the admissions officers from 400 top colleges and universities that Kaplan surveyed, 25 percent of them said that they have "felt pressured to accept an applicant who didn't meet (the) school's admissions requirements because of who that applicant was connected to."
    is there an over the counter equivalent to zofran "Mr Obama will find almost the entire world behind him, because he is truly opening a 'new chapter' in his country's ties with not only Cuba, but much of Latin America," the article says.
    comprar bactrim Stern first bolted over to satellite radio in 2006 after signing a five-year contract with Sirius worth $500 million
    prednisone dose for skin allergy But those who want to see his final three episodes won’t find them on “Masterpiece” yet — only on Acorn TV (acorn.tv), a subscriber service that specializes in Brit and international dramas.

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