The slump in oil prices has a huge foreboding implications for Nigeria which depends largely on earnings from the commodity for her foreign exchange resources.
The Federal Government has uncharacteristically been swift in acknowledging the development as it on Monday empaneled the Finance Minister, Minister of State for Petroleum Resources , Central Bank of Nigeria governor, and the Group Managing Director of the National Petroleum Corporation to make analysis of the development which resulted from the ravaging coronavirus pandemic on the national economy.
The Minister of Finance, Zainab Ahmed, disclosed this in Abuja after a meeting with Buhari.
The government has agreed there’s need to cut its 2020 budget, but the extent of the cut would be determined by the result of the committee’s findings which are expected to be submitted to President Muhammadu Buhari on or before Wednesday.
President Muhammadu Buhari, in December, signed a N10.59 trillion 2020 budget, on the assumption of oil production of 2.18 million barrels per day with an oil price benchmark of $57 per barrel.
However, oil prices had plummeted by over 25 percent, forcing future to its lowest in years, as Brent crude benchmark fell from $45 a barrel to $36.32 as at 6:00pm on Monday, while WTI fell from $40.45 to $32.97.
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A leading Nigerian newspaper, The Guardian reports that the latest projections by Goldman Sachs which appeared on Monday showed that the oil market is heading into a whole different era now that Saudi Arabia and Russia are squaring off in an all-out oil price war following Friday’s failed OPEC+ agreement, thus making $20 Brent Crude a real possibility.
However, the Lagos Chamber of Commerce and Industry (LCCI), through its Director-General, Muda Yusuf, said a fall in oil price has implications for the level of fiscal deficit in the budget, as its implementation would be constrained; infrastructure financing affected; borrowing might increase, and the capacity to fund capital project would be severely constricted.
With this scenario, the outlook for oil-dependent economies looks rather gloomy, he added.Oil prices plunged by 10 per cent on Friday after OPEC and its Russia-led non-OPEC allies failed to agree on how to handle the depressed demand amid the Coronavirus outbreak.
The Saudis and OPEC insisted on a massive 1.5-million-bpd cut through end-2020, but Russia refused to continue ceding more ground and market share to U.S. shale with the OPEC+ production cut deal, which hadn’t materially moved oil prices higher, especially with the slump in demand due to the epidemic.
Pundits are projecting a gloomy scenario where the prices of the commodity would close to 1998/99 when they swooned to lowly $9 per barrel.
