Respite may have come the way of Nigeria following the surge in the price of crude, which for the second day in two weeks went above the 2019 budget benchmark of $60 per barrel. As at yesterday, Brent sold for $61.96 per barrel, as against the $61 it sold the previous day. The rise in price is coming after Russia and Saudi Arabia renewed a pact to cap output, while the United States agreed to halt raising tariffs on Chinese imports, stalling a trade row that many feared could hit demand for the commodity.
Organization of the Petroleum Exporting Countries, OPEC, is set to meet tomorrow in Vienna, Austria to agree on output policy as well as discuss its strategy with producers outside OPEC, including Russia. OPEC and its allies are said to be working towards a deal to reduce output by at least 1.3 million barrels per day (bpd). The development however, elicited reactions from experts who called for caution and proper management of the country’s economy so as to withstand future decline in the price of crude. Chambers Oyibo, former Group Managing Director, Nigerian National Petroleum Corporation, NNPC, and currently, Chairman/CEO, Prime Energy Resources Limited, said that government should prioritise its expenditure since the nation’s income is oil dependent. He stated: “Nigeria depends a lot on oil price. Oil is the mainstay of the economy. Change in price is definitely bound to affect us. Oil price can change. Anything can affect it. It is all about international politics.” As regards the 2019 budget benchmark of $60, Oyibo said, “If price is stable, Nigeria can plan effectively. Price fluctuation makes planning very difficult. However, government should prioritise its expenditure, knowing fully well that its income is dependent on oil.” Speaking on the impact of low oil price on Nigeria’s economy, Afe Mayowa, Managing Director, Danvic Petroleum International, stated that there should be no cause to worry, as oil price fluctuation is not a new thing. He said, “Nigeria should not worry about any change in price. We have to live with it. We should not panic. Definitely, the price will rise again, as OPEC will rise to the occasion. The price decline will not be as bad as we had before.” As to what should be done both in the medium and long term, Mayowa said, “Government should begin to have buffers, so as to cushion the effects of low oil price. The benchmark is still valid, as it is a projection. When there is increase in price, government should manage the economy appropriately knowing fully well that price fluctuates, as nothing in life is constant.”Abiodun Adesanya, Chief Executive Officer, Degeconek, an oil servicing firm specialising on geosciences consultancy, said Nigeria should not panic due to oil price fluctuation. He stated: “I think we don’t need to panic, but we need to be concerned. Oil price is out of the control of Nigeria. Price is dependent on international politics. We should keep our eyes on it, but not to panic. “As a medium term measure, Nigeria should refine its petroleum locally. The more we do that, the better for Nigeria’s economy. “For the long term, the economy should be diversified, while buffers should be put in place, so as to be able to absorb the shock. For Dr. Boniface Chizea, an economist and management consultant, Nigeria is panicking due to the decline in oil price, because it is yet to build buffer zones to mitigate such decline. He stated: “My reaction to the fluctuation in the price of oil is that this is a development associated with playing in the oil market and therefore as a country we must rise to the challenge by building up buffers when oil price improves to mitigate the consequences of such volatility.“This recent sudden drop in the price of oil was due to the fact that the Americans disagreed with the protocol reached with the Iranians regarding the development of the nuclear weapon and then proceeded to impose its own terms with the risk of imposition of sanctions that would negatively impact the relaxation in oil exports by the Iranians. The imposition of sanctions by Americans caused a drop in the availability of crude in the market which resulted in the recent sudden price increase. “Certainly the Iranians were able to return to the market and scarcity situation was improved and therefore the price of oil again went into a tail spin as the price now is at the level of under 60 dollars haven attained above 80 dollars in the recent past. “Unfortunately for Nigeria we are not able to take full advantage of the spike in oil price since, for Nigeria, oil is a double edged sword because of the fact that Nigeria imports most of the refined petroleum products it consumed and therefore the subsidy situation worsens as the price of oil increases. “Unless Nigeria is able to address this untoward situation the economy is bound to suffer with resources which should have been deployed towards the provision of essential infrastructure consumed in corruption driven subsidy payment which in fact encourages product diversion to neighbouring countries as attempt is made to take advantage of this situation.

Ayomide Oyewole

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