Yemisi Izuora/Ijeoma Agudosi
Members of Organisation of Petroleum Exporting Countries (OPEC) are battling a U.S. shale boom by resisting production cuts just as oil prices have continued to be on the downward slide.
Following the scenario, analysts believe Federal Government should adopt a more pro-active survival strategy by adjusting the micro economic variables to cope with the effects of the continuous price decline on the economy.
Price of OPEC basket of 12 crudes stood at $43.55 a barrel Tuesday, compared with $45.19 the previous day.
Specifically, WTI crude for February delivery fell below $45 a barrel on Tuesday morning for the first time since April 2009 and was trading at $44.91 a barrel. Brent crude futures lost around three per cent in the morning session and were trading at $46.04 a barrel. Both have crashed by around 60 percent since mid-June last year.
Oil prices have fallen 60 per cent from their June 2014 peaks, driven down by rising production, particularly U.S. shale oil, and weaker-than-expected demand in Europe and Asia.
According to the U.S. Energy Information Administration (or EIA), US crude output increased to 9.14 million barrels per day (MMbpd) through December 12. This is the most in weekly data from the EIA, which goes back to January 1983. The EIA expects production to average 9.3 MMbpd in 2015.
The EIA scaled down its 2015 production growth forecast from 900,000 to 700,000 barrels.
Speaking with The Guardian on the crude oil price decline, Ernst & Young Africa Advisory Oil and Gas Lead, Claire E. Lawrie, urged the Federal Government to adjust micro economic variables to cope with effect of the continuous price decline on the economy.
She stated that crude oil exports generate over 90 per cent of Nigeria’s foreign exchange earnings and as such the country is prone to serious economic pressure if there are no plans to deal with the situation
According to the oil and gas expert, the price of oil is important to the world economy, given that oil is the largest internationally traded good, both in value and volume terms. “Since the era of the oil boom in the 70’s, Nigeria has been dependent on “oil-cash” with a need to continue diversification of the economy”.
She said that continuous decrease on the prices of crude oil could result in long-term reductions in OPEC oil export revenues, and would force OPEC countries to make difficult economic, social, and political tradeoffs.
She stated: “The price of oil is linked to some extent to the price of other fuels. Therefore, abrupt changes in the price of oil have wide-ranging ramifications for both oil-producing and oil-consuming countries (that is, the multiplier effect of oil prices on other products).
“Nigeria’s sweet crude is in demand. China alone can take all that we produce. The recent decline in crude oil price has impacted negatively on the capital market activities and has become a source of worry to stakeholders. The stock market is reacting negatively to the decline in crude prices. This is normal – anytime the crude oil price falls, it usually have negative impact on the stock market”.
To ensure stability, Lawrie stressed the need for the Federal Government to adjust the macro economic variables. “This can be achieved by stabilizing inflation rate and exchange rate. For oil prices to go up, there has to first be a production shut-in by all OPEC members.. Secondly, to try and solve the problem locally, the Federal Government should look towards refining locally and becoming the central supplier of refined product to West Africa”.
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