Global oil prices have been falling steadily for more than 6 months now, and different scenarios, analysis have been postulated recently as to why oil prices might fall to $30 a barrel or even lower.

These predictions generate mixed reactions from different countries depending on whether they are net importers or exporters of oil. Consumers in many oil importing countries might be more relaxed because these countries will have to pay less to fuel their cars, but it’s the countries that depend on oil as a major revenue earner for their nations that will be scared and could pay dearly for this volatility in oil prices.

World oil prices have been steadily rising over the past 5 years, Brent crude rose to as high as $111.26 a barrel in 2012, up from $61 in 2009. However from mid-late 2014, prices began to slump and it fell to as low as $50 a barrel in April 2015, for the first time since May 2009. As at today oil sells for around $47 per barrel.

Reasons for the Price Fall:
◾Weak demand in many countries (such as china), due to slowing economic growth.
◾Surging US shale Oil production.
◾Over Supply of oil forcing prices to drop.
◾OPEC not cutting production as a way to prop up oil prices.
WHAT ARE THE IMPLICATIONS FOR NIGERIA?

Russia loses about $2bn in revenue for every dollar fall in oil price, the World Bank has already warned that Russia’s economy will shrink by at least 0.7% in 2015 if oil prices do not recover.

Nigeria like Russia is a net oil exporter, and will face severe consequences if the oil price keeps falling. Below are the implications…


◾Infrastructure will be hampered:

According to the Nigerian Bureau of Statistics, as at Q2 2015, Nigeria earned N2.8trillion from exports out of which oil accounted for N2.5 trillion or 87.3% of that value. If oil prices keep falling Nigeria will earn less than this which will mean less funds for infrastructural development to cater for projects in all 36 states of the country. Capital projects like roads, bridges, rail, and electricity require massive amounts of money.
◾The Naira will take a severe beating:

A continuous fall in oil prices will have the naira value depreciate, this is because falling oil prices will cut export revenues hence driving down the value of the Naira.
◾Oil companies will Sack/Lay off workers:

Oil companies are likely to be hampered by cheaper oil. The reduction in profits of these companies like shell, chevron etc. will have severe consequences. Some of which will include job cuts, layoffs, and lower spending.
◾Uncertainty for 2016 Budget:

The fall in price will create uncertainty for the benchmark for the 2016 budget. The 2016 budget will be critical for this new administration, as it will be the first budget to be passed by them. The budget will be critical to kickstart the economy along the lines of which this administration led by President Buhari will like to go. Lower oil prices will be a painful sore for the budget.
◾More Debt:

If oil prices keep falling, given the weak level of foreign reserves, economic pressures will remain, which might lead to government spending cuts. The government may also be forced to go to the capital market to issue bonds and borrow more money hence increasing domestic debt.
more on....http://nairametrics.com/the-nasty-economic-implications-for-nigeria-if-oil-price-drops-to-30/

oil analysts have predicted that vagaries would hamper oil exporting countries. The actually proffered a solution to mitigate such as diversifying the economy and saving.

The real question is: what was the price during the so called oil boom of the 1970s. What was it in the 90s up to 2000. Even at 30 usd it is still more than enough if the economy is judiciously managed.

The government recently reported sharing more allocations and increased revenue despite the drop in oil prices, plus I'm sure they have plans to diversify into other revenue generating resources (that's if the campaign promises are anything to go by), plus the rise in the foreign reserves etc, I think we'll get through. We are survivors. Hopefully, by the end of the year, prices would have started rebounding. Not the 1st time oil prices have crashed.

With further crash in the global market of crude oil prices, issues such as downsizing by companies, tight budget forecast and the naira having hard knocks amongst others will arise for sure. I am sure whatever we loose in that sector can be gained from other sectors if the govt does the needful. We can make so much from local refining and make big bucks as the market is huge and will be more gainful. Agriculture and solid minerals can be given the great boost that is needed to also cushion the effect. We really need to grow our economy and also prevent capital flight in the name of importation for items and goods which we can grow and source locally.
With a committed and sincere govt, Nigeria can withstand the impending economic brouhaha by saving and prioritizing govt projects.
Nigerians too have a major role to play in this too by supporting govt and working together for the common good rather than the rat race of pursuing selfish interests.

we cant compare the 1970s and now, our population was less than now, we have more people now to cater for and more infrastructure is needed to accommodate the rising population, so a falling oil price is a disaster for a country like Nigeria.

holocron:
The real question is: what was the price during the so called oil boom of the 1970s. What was it in the 90s up to 2000. Even at 30 usd it is still more than enough if the economy is judiciously managed.

Your analysis only considers the NOMINAL price of oil. Once u account for inflation, then the REAL price of $30 oil in 2015 might be equivalent to $5 oil in 1970.

Also, when you consider how much our population has grown since 1970, then you will observe that the oil per capita in 2015 is much lower than in 1970.

Obviously, $30 oil price is disastrous for a mono-economy like Nigeria. Let's hope the government will be responsible and proactive enough to diversify the economy.

Bevista:
Your analysis only considers the NOMINAL price of oil. Once u account for inflation, then the REAL price of $30 oil in 2015 might be equivalent to $5 oil in 1970.

Also, when you consider how much our population has grown since 1970, then you will observe that the oil per capita in 2015 is much lower than in 1970.

Obviously, $30 oil price is disastrous for a mono-economy like Nigeria. Let's hope the government will be responsible and proactive enough to diversify the economy.

I believe you are right on the inflation since 1970, perhaps you may have exaggerated. It might be about half or maybe one-third. However, by the quantity of revenue lost via the oil scandals we keep hearing about, is it unreasonable to think that in actuality, the oil revenue available for government use all these time may be at this same $30?

holocron:


I believe you are right on the inflation since 1970, perhaps you may have exaggerated. It might be about half or maybe one-third. However, by the quantity of revenue lost via the oil scandals we keep hearing about, is it unreasonable to think that in actuality, the oil revenue available for government use all these time may be at this same $30?

I agree with you completely that there are a lot of revenue leakages. I have always maintained that, for the size of our GDP and population, an annual budget of $20B is way too small. SA with a smaller GDP and population manages an annual budget of around $100B.

Also, i dont think i exaggerated the $5 oil price. Infact, if you discount $30 today back to 1970 using an inflation (discount) rate of 6%, you'll get a value (PV) of about $2.

it's my sincere prayer for it to drop to $10 and let see what will happen