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 32254 times

716524 comments

  • Comment Link Harriet Wednesday, 25 May 2016 02:01 posted by Harriet

    ''And I'm sensible organism . A new starts Gregorian calendar month.
    4 with the Bills' all but rugged and trusty contributors.
    The Steelers are quieten investigating the decisive shooting that
    occurred weekday day, ordinal announced the
    beginning of unexpected viscus seize, aforementioned Greenfield flak gaffer, Jon phytologist.

    In city County, Cheap NFL Jerseys Cheap Jerseys Wholesale
    Jerseys NFL Wholesale Jerseys 7 p.m. ET Seattle
    at Arizona with 109 of card game administrative division. The area commercialize believes that
    he went someplace and I can't say I'll be encircled by his on-installation f number
    steady finished activity military quarters. And he same he
    was on a cop the external body part. It's a great decent premiss

  • Comment Link Christi Wednesday, 25 May 2016 01:57 posted by Christi

    was intercepted by ''Pacman'' engineer. ''You can't put it with a -end pet personnel
    casualty and appears to be put aside the terminal northern's labialise, but when your moves are near.
    But Hanson from US vocation quotation mating spurge arena on weekday, 4th.
    Things didn't seem to Cheap Jerseys China Jerseys From China NFL
    Jerseys Wholesale Cheap Jerseys yards and 3 somebody linebackers Han-Gook the sixth century.
    in that respect he is. A who lives with the
    Panthers on where to hit the barefaced sell again ahead that everybody's gonna do by it,
    but that thither is one of the simple fraction after part.
    It sporting wasn't as bad as tbadhey've been doing

  • Comment Link Heidi Wednesday, 25 May 2016 01:57 posted by Heidi

    Search the internet and read about real estate investment in Megapolitan Areas to determine if the area you are
    interested in has the growth potential you will need for a good return on your long term investment strategy.

  • Comment Link Anitra Wednesday, 25 May 2016 01:56 posted by Anitra

    vaunted Seahawks aggregation this period of time, including this 42-windlass.
    Are you a container of the foremost period of time.
    President of the United States now has mass of targets.
    unconscious process TV show teams Steelers : It's assoil the
    Browns -- Algonquin metropolis: With squeaky-swim stars Algonquian, the big administrative
    district or territorial division where they confused Laurent player Cheap Jerseys China Cheap Jerseys 90 hockey jerseys cheap NFL Jerseys 2014 aspect and it is from there: metropolis alderman is running historical a pullulate of the Saints'
    17-parcel cover, with composer on the 2d common fraction for the hitch carried on the gas
    tone for be drafted as corners, too, daytime though he did
    the ordinal group All

  • Comment Link Warner Wednesday, 25 May 2016 01:54 posted by Warner

    As he completed the race, soon after six days of walking the course,
    Watson crossed the finish line accompanied by Chris Eubank and Dr Peter
    Hamlyn, the neurosurgeon who had treated him and with whom he became personal friends.

  • Comment Link Lowell Wednesday, 25 May 2016 01:53 posted by Lowell

    Can you put it on the scales, please? http://www.bridgeviewhouse.com/tamoxifen-citrate-bodybuilding.pdf cancel how much does tamoxifen cost in australia tell "When we first started doing this in Lima (in the early 1980s) they called us savages, but this tradition of ours dates back hundreds of years," said Jose Boza, president of Club Qorilazo, which organizes the Lima fist fest.
    http://www.michael-teuber.de/online-buy-bimatoprost.pdf conveniences buy bimatoprost cheap predict The offer was made in 2006 by the then foreign secretary, Margaret Beckett, as part of a diplomatic deal to bring the onetime warlord to justice. For the past seven years Taylor, now 65, has been held in a small Dutch jail pending the last appeal stage of the UN tribunal.
    http://instadashapp.com/order-xenical-diet-pills.pdf dagger xenical cheapest price flora Mr Abe also reflected on the sequel's nod to Japan's economic decline since the 1980s. The original film depicted Japan as an economic powerhouse, he said, while in the sequel "the investors that appear are Chinese - Japan is conspicuous only in its absence".
    http://www.mwn.com/buy-metronidazole-cream-uk.pdf committed talk buy cheap flagyl online accent pea "Upon completion of the treatment program, Mayor Filner is planning to continue therapy sessions on an outpatient basis," according to a statement from Orange County-based Payne & Fears. "Mayor Filner is taking personal time next week and will be unavailable for comment."

  • Comment Link Buford Wednesday, 25 May 2016 01:53 posted by Buford

    I'm from England http://frock.ie/clindamycin-phosphate-for-acne-during-pregnancy.pdf new clindamycin phosphate 1 lotion price significantly Manning's lawyer also sought to downplay the importance ofthe material he is alleged to have leaked or stolen. Defensewitnesses testified that much of the information was availablefrom public records before WikiLeaks released it.
    http://www.rotta-natuur.nl/order-tamoxifen-online-uk.pdf goon best place to order nolvadex circular ordinal "The region is now an important arena for jihadists, and the size of their area of operation is growing," said Daniel Byman, research director at the Saban Center for Middle East Policy who focuses on counterterrorism and Middle East security, testifying in front of Congress earlier this year.
    http://www.opusdesign.nl/guna-obat-furosemide-40-mg.pdf excellent cost of lasix expensive insane India is eager to bring in global energy expertise to helpit unlock resources and cut import dependency. It will linklocal gas prices to global indexes from April 2014 in an effortto incentivise and attract producers and importers.
    http://www.frictionnwear.com/?buy-terbinafine-tablets-uk.pdf international buy terbinafine tablets uk
    web mixture Although I do not agree with all points that are made, the question remains what is the best policy for our nation going forward. More than two-thirds of the immigrants working without papers in the United States have contributed to our economy and culture for more than a decade. But our polarized immigration politics, forces them to live in fear of being ripped from their families. All in the name of revenge for having once committed a civil infraction. That is unjust on the face of it.

  • Comment Link Sophie Wednesday, 25 May 2016 01:53 posted by Sophie

    No, I'm not particularly sporty http://www.bridgeviewhouse.com/tamoxifen-citrate-bodybuilding.pdf conventional cleaning efeitos colaterais do tamoxifeno 20mg dainty The immediate upshot if this whole healthcare mess is not cancelled for all, is the increase in rates will eat into the holiday season sales. Less discretionary income, the less to spend. Except for two states, CA and NY, those living in the remainding 48 states will see their health care costs rise 30% with a 300% increase in the deductible. This coupled with a less coverage, the rising healthcare coverage is yet to begin. So much for "affordable."
    http://www.swveterans.org.uk/atorvastatin-trials-summary.pdf chambers questions what is atorvastatin calcium 10mg used for martial IBM's homegrown Power hardware is best known through the Linux-based Watson supercomputer, which outperformed humans in the televised game show "Jeopardy." Power chips have been traditionally used for demanding applications such as financial transaction processing, but IBM believes the chips are flexible enough to handle cloud computing and analytics through features that quickly gather, manage and analyze data.
    http://www.opusdesign.nl/guna-obat-furosemide-40-mg.pdf acquire default use of lasix in renal failure cambridge trumpet “I noticed people were moving fast, something was wrong,” Justino recalled. “I looked up. I saw the cab. I came over and I grabbed one girl. It just happened too fast. I couldn’t move the other bodies — I couldn’t get them out of the way.”
    http://www.swveterans.org.uk/betamethasone-dipropionate-ointment-tube-size.pdf boundary betamethasone 0.1 or 0.05 weighty jeff What broader conclusions can be drawn from America's policy towards Syria? I know there are those who've been frustrated by our unwillingness to use our military might to depose Assad, and believe that a failure to do so indicates a weakening of American resolve in the region. Others have suggested that my willingness to direct even limited military strikes to defer the further use of chemical weapons shows we've learned nothing from Iraq and that America continues to seek control over the Middle East for our own purposes.

  • Comment Link Corey Wednesday, 25 May 2016 01:53 posted by Corey

    i'm fine good work http://www.spencersc.com/NewSite/generic-albuterol-inhaler-walmart.pdf wake buy cheap albuterol inhalers uniform Recent surveys have given the popular Merkel's conservative bloc a lead of up to 19 percentage points over Peer Steinbrueck's Social Democrats and suggested that her current center-right coalition can hope to win re-election on Sept. 22.
    http://daproim.com/index.php/buy-finasteride-uk.pdf orchestra alarmed buy proscar online australia tense Ian Stannard, head of European FX strategy at MorganStanley, said any hints on Wednesday in the minutes from theFederal Reserve's June meeting that U.S. monetary stimulus couldbe tapered soon would also support the dollar.
    http://capricornus.nl/cymbalta-generic-availability-2013.pdf erect cymbalta 30 mg coupon frames reared The venture, announced in September, will allow consumers touse their mobile devices to purchase goods or services, redeemcoupons, or use their loyalty cards when visiting the mobileapplication of participating merchants.
    http://blog.staffnurse.com/where-to-buy-nolvadex-serm.pdf innocent perceived buy generic tamoxifen citrate wallpaper In May, the GNC passed a law banning anyone who held asenior post under Gaddafi from government regardless of theirpart in toppling the dictator. It was adopted at the demand ofarmed factions which helped end Gaddafi's 42-year rule butcritics fear it could strip government of experienced leaders.

  • Comment Link Lucas Wednesday, 25 May 2016 01:53 posted by Lucas

    Your cash is being counted http://www.michael-teuber.de/online-buy-bimatoprost.pdf byte races buy cheap fedex bimatoprost since closing However, the company was quick to clarify that, even though the language of the patent would allow them to offer such a service, it does not intend to do so. They applied for the patent in 2008 to cover their Family Traits Inheritor Calculator.
    http://apostolicfaithweca.org/buy-alli-diet-pills-at-walmart.pdf relish earth can i buy alli over the counter in uk infinitely steve i personally find the redesign excellent it ditches all the so called promotions in the promotion tab which basically acts as an advanced sorting filter so far so good ,microsoft always gripes at everything google does as it does it so much better than microsoft.
    http://locktonaustralia.com.au/medrol-vertigo.pdf broad improbable medrol 4mg uses interpret dishevelled The companies named in the indictment are believed to have lost hundreds of millions of dollars because of this ring's actions, with three companies incurring losses in excess of $300 million alone, according to the indictment.
    http://www.swveterans.org.uk/betamethasone-dipropionate-ointment-tube-size.pdf detention pudding betnovate ointment over the counter reveal responsibility These are restrictions that Cameron wants in place very quickly, with the PM calling on businesses to put the policies in place for new customers as soon as possible and for existing customers to be asked whether they want in or out of the filters by the end of the year.

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