Oil price war halves Nigeria’s revenue projection

The price war between Saudi Arabia and Russia has halved Nigeria’s revenue projection as crude oil collapsed by more than 30 per cent under the combined pressure of a no-deal end to the OPEC+ meeting last week and Saudi Arabia’s announcement on Sunday that it would turn the taps on and pump as much oil as it can.

On Monday, Brent crude was trading at $31.34 a barrel and West Texas Intermediate was trading at $27.44 a barrel.

President Muhammadu Buhari signed N10.594trillion 2020 budget into law in December 2019 based on crude oil production of 2.18 million barrels per day (mbpd) while the benchmark oil price is $57 per barrel.

With oil price trading around $30 per barrel on Monday, it means Nigeria’s revenue projection is halved.

However, if the price war continues and oil prices fall to around $20 per barrel, Nigeria has itself to blame of it is caught out due to an oil price slump once again like in 2016, having failed to reduce the country’s heavy reliance on crude oil.

Almost everything from economic growth in 2019 to the relative stability in the exchange rate has been due to crude oil prices trending higher from 2016’s low rather than government reforms.

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Industry stakeholders have argued that the best response at this time of heightened uncertainty will be to finally push through the reforms that can help soften the blow of an oil price downturn.

Saudi Arabia, at the weekend, announced it would cut its official selling prices for April by between $6 and $8 per barrel, signalling it was now changing its priorities and focusing on preserving its market share.

At the same time, Bloomberg’s Javier Blas and Anthony DiPaola reported that the Kingdom was planning to raise production, going to a record-high of 12 million bpd if it had to, according to unnamed sources in the know. The purpose could be to make Russia and other producers feel the pain that Saudi Arabia is feeling in the price department and convince them to agree to cuts, according to Blas and DiPaola.

However, if this is indeed the Kingdom’s purpose, it may be miscalculated as Russia is less reliant on oil revenues and it also has no ambitious multi-billion-dollar investment programs. And, according to analysts, it wants to hurt US shale.