The further
slide in oil prices followed concerns about slowing Chinese demand, even as
Iran and the United States look set to raise oil production. Chinese stock
markets on Monday suffered their biggest one-day decline since the global
financial crisis, exacerbating worries over the outlook for global oil demand.
Brent,
against which Nigeria’s oil is priced, on Monday fell by $2.16 to at $43.30 per
barrel, near its weakest since March 2009, while the US benchmark West Texas
Intermediate was trading around $38.74 per barrel.
The steep decline
in oil prices had in March forced the National Assembly to settle for $53 per
barrel as the benchmark oil price for 2015 budget, down from $65 proposed by
the Executive, which had to adjust it twice, from $78 to $73, and later to $65.
An economist
and Managing Director/Chief Executive Officer, Financial Derivatives Company
Limited, Mr. Bismarck Rewane, in a
telephone interview, told Tectono Business Review that “at $43 a barrel, it means from $108 to $116 in Nigeria last
year, our revenue is down by 65 per cent.”
He said: “Anybody whose income drops by 65 per cent has to think very
hard. We have some hard times ahead of us.”
He warned
that oil price could decline further, saying: “Your
benchmark price is at $53; average price by this time last year was $100 and
now you are at $43 and you are going to $30; you don’t need anybody to tell you
that.”
BMI Research
had last week said Brent would not recover until 2018, downgrading its average
price forecasts to $56 and $55 per barrel for 2016 and 2017, respectively,
compared to an average of $57 in 2015.
It said: “The return of Iranian oil to market, coupled with strong
project pipelines in North America, the Middle East, West Africa and
Kazakhstan, will see global supply growth outstrip the growth in global consumption
for the next two years. A rising overhang of crude will maintain downward
pressure on Brent.”
Mr. Dolapo Oni, who is the Head of Energy Research, Ecobank
Capital, said: “The slide is a reminder to Nigeria that
it is not enough to set the budget benchmark at $53, steps must be taken to
ensure that revenue is protected by hedging the country’s oil output to some
extent. Furthermore, it is indicative of the need for Nigeria to diversify away
from dependence on oil. The current slide is likely to continue due to China’s
strong influence on the energy markets and the current economic headwinds in
China are creating bearish pressures on global markets for securities,
currencies and commodities.”
According to
Mr. Oni, the key implication from this for Nigeria is the continued decline in
government’s revenue; pressure on the naira to continue losing value against
major currencies, especially in the parallel markets; while oil production may
come under pressure as some fields are no longer economic at this price.
No comments:
Post a Comment