While it is true that the Nigerian economy is dependent on Oil which accounts for over 90% of export earnings and 40% of government revenues coupled with the current gloomy oil market outlook, her fortunes prima facie looks bleak.
A more cursory look in these times reveal otherwise; there are actually advantages that must be creatively harnessed for genuine organic growth and wealth redistribution.
- Natural resources – predominantly gas.
- Large young “working” population.
- creative minds that can recognize the opportunities, look inward and develop Nigerian solution to Nigeria’s challenges.
- approximately 80% of Nigerians do not rely on foreign import for their sustenance.
NATURE OF THE OIL MARKET
The principle of demand and supply is primarily responsible for the price of oil. Other factors are the financial markets and government policies.
Oil is essentially traded on contract basis (futures market), whereby oil is traded about three months in advance of delivery date, i.e. contracts for May delivery would have been signed off by the end of February.
Oil prices are currently low because the activities (more than 50%) are currently not in demand. These activities are:
- Land transportation
- Marine transportation
- Industrial and factory use
CASE STUDY- NIGERIA
Before the OPEC+ production cut agreement, Nigeria’s daily estimated oil production stood at approximately 2 million barrels, with an installed storage capacity of approximately 60 million barrels. The breakdown is below:
Nigeria’s textbook solution
Nigeria will need to undertake the following in order to shield itself from the effect of low oil prices:
- Strengthen internal pipeline and storage infrastructure, in order to limit instances of field shut-ins.
- Strengthen domestic refining capacity, in order to reduce dependence on foreign refined products and also to encourage job creation domestically.
OIL PRICES- THE FUTURE
With the United States, Germany and China steadily re-opening their economies, oil and gas production and consumption should get back to about 35% of pre-pandemic levels by the end of July 2020.
Hence, with increased demand, oil prices are expected to appreciate to the region of $40 – $60 per barrel by the end of Q2 2021.
The blessings ahead
Low oil price should relatively have no effect on the peace and prosperity of Nigeria, it will rather help to drive Nigeria to a stronger country economically and politically.
With low oil price, the leadership will become more creative because it will also bolster the Government’s fight on the corruption challenge. This will actually open the curtains and let the lights of progress and prosperity.
Nigeria’s import bill which is approximately 40% petroleum products will drop sharply considering the extinction of Government subsidy on refined petroleum products as a consequence of the global decline in crude oil prices.
Cost of production will drop across board thereby creating more opportunities for more Nigerians to be involved in every spectrum of the hydrocarbon business.