This week may not be amongst the best periods for the ailing Nigerian economy following the sudden drop of global crude oil price from recent high $80 to as low as $65, thus shading $10 from the nation’s 2025 budget benchmark of $75.
Business Hilights recalls that this year’s national budget is anchored on a benchmark oil price of $75 per barrel and an ambitious production target of 2.06 million barrels per day.
Approximately N19.60tn, up to 56 per cent of the initially projected N34.8tn revenue, is expected to stem from oil, reflecting Nigeria’s heavy reliance on oil for fiscal sustainability. But with this nosedive, the above estimation has run into crisis as we write.
Besides things are worst off now the cost of producing a barrel of oil in Nigeria has jumped to $40; meaning that for one barrel sold now at $65, only $20 is gained after all.
Explaining in an interview, the Executive Secretary of the Major Energies Marketers Association of Nigeria (MEMAN), Clement Isong, said the crude price crash is bad for the nation’s economy considering the budget projection.
According to him, it was clear that the world is currently in turmoil, and that it has never been this bad in recent years.
He said, “We have had the market crash a few times, I think in 2008, and I can’t remember what the last one was, maybe 2014. But it has never been this bad. I’m talking about globally.
“Fortunately, this is man-made. It is because one person stood up and did something. So, it also means that if he can compromise, or they can work out some compromises, it might be reversed. But is there a negative impact on my country? Yes, as usual, it’s a negative and positive impact.”
He further averred that “The extremely low price of crude oil at $65 per barrel is really bad based on the benchmark that was used for the budget for this year. So, if it should last, it means that the deficit would be even worse than what was anticipated. It’s really bad news for the expected revenues for the country,” Isong said.
The MEMAN boss also said the low crude price may affect investments, especially with the cost of production.
“Hopefully, it will not impact too much on investments, because, as you recall, we have had insufficient investments in our upstream, leading to the decline in our crude oil output. Normally, in the world, when crude oil prices are high, those who invest in production bring out more money.
“Remember that Nigeria’s production cost is quite high because a lot of new production is deep offshore. So, because deep offshore is so expensive, you really need the cost of the crude to be as high as possible in order to generate the revenue that the country needs to fund its ambitious development programme. So, it’s both negative and positive.
“I hope we can push it down. But $66 per barrel is not very interesting. It’s not very good for us,” he stated.
However, the energy expert maintained that the crash would also impact pump prices, bringing down the cost of fuel.
“With respect to prices at the pump, over time, I guess, they will go down. If the crash is continuous, fuel prices will go down, and that will provide some relief to commuters and transporters of goods. So, it has a dual impact,” he submitted.
Also speaking, the National President of the Petroleum Products Retail Outlet Owners Association of Nigeria, Billy Gillis-Harry, explained that the crude crash will affect the economy both positively and negatively.
He said Nigeria depends too much on oil sales to fund its budget, saying a crash in price can spell doom for the nation.
For retailers, he said the prices of fuel will fluctuate with no stability, saying the price of petrol is now close to N1,000 per litre.
He charged the government to look inward and develop its internal economy, saying Trump’s decision to raise tariff is a big lesson for serious economies.
