Decline in Oil Prices Put Pressure on Nigerian Economy

The fall in the global oil prices, which began in June, is posing further threat to the country’s economy with insurgency in parts of the North still taking a toll on agriculture and other economic activities in the region
Oil prices have dropped by 12 per cent from $105 per barrel a few months ago to about $92 presently. The price of OPEC basket of 12 crudes, which include Nigeria’s Bonny Light, stood at $90.33 per barrel, compared with $90.40 the previous day, according to the Organization of the Petroleum Exporting Countries’ secretariat calculations.
The decline surface when the Nigerian oil and gas industry is laden with several challenges, including pipeline vandalism, oil theft and the non-passage of the Petroleum Industry Bill that seeks to overhaul the industry.
Energy analyst at Ecobank, Mr. Dolapo Oni disclose that the current lower price trend is going to have a major effect on Nigeria if the trend continues for about three months, adding that the trend is likely to continue until the market adjusts the volume of oil supply available. OPEC is likely to make a major adjustment in November. Until then, the market is likely to remain over-supplied and prices could remain below $100 till then.
He further said lower oil prices have reduced the fiscal buffers of the Nigerian economy. Basically, the amount entering the Excess Crude Account is going to shrink and can put some pressure on federal allocations, which often have to be supported with withdrawals from the ECA.
Revenue from crude oil has seen decline in recent times owing to large-scale oil theft, production shut-ins and the rise of shale oil production in the United States, resulting in persistent cutbacks in the US imports of Nigerian crude.
In August, the country’s total revenue fell to N601.6bn from N630.3bn in July. The decline in federal revenue in the month, according to the Federation Accounts Allocation Committee, was due to the force majeure affirmed by Shell and a series of shutdown of trunklines and pipelines at various terminals.
 Dr. Ngozi Okonjo-Iweala, Minister of finance, disclosed that “Knowing what we know about the volatility of oil prices and about the need to make sure that we capitalise on a diversified economy, we have been working hard.”
She said budgeting much lower than the market price and saving whatever was above would give a cushion, with about $4.11bn now in the surfeit Crude Account.
For 2014, the Federal Government had projected a budget of N4.5tn, based on a benchmark oil price of $77.5 per barrel.
Okonjo-Iweala said, oil will continue to be vital as a source of revenue, but we really need to drive the economy away from where we have 70 per cent of revenue in oil and 30 per cent from other sources.
“We want to drive it to where a third of our revenues come from oil and two-thirds from the non-oil sector. That is the vision for this economy. That is when we can see that we are capitalising on our very diversified base” she said.