Economy under threat as oil price falls below $73

28 November 2014, Lagos – Efforts by Nigeria and four other members of the Organisation of Petroleum Exporting Countries to see a reduction in oil production to revive falling oil prices proved abortive on Thursday as the 12-member cartel decided to maintain production quotas.

No sooner had word gone out that OPEC at the end of its meeting in Vienna decided not to cut production than oil prices slumped to a five-year low.

mrs-okonjo-iwealaBoth Brent and West Texas Intermediate crude prices fell heavily after the meeting with Brent dropping below $72 per barrel and WTI falling to $68 for the first time since 2010.

The Brent crude price, against which the Nigeria oil is priced, has fallen below the country’s 2014 budget benchmark of $77.5 per barrel, putting further pressure on oil revenue and threatening accretion to the Excess Crude Account.

The ECA, where money over the benchmark oil price is saved, dropped to $2.5bn at the start of 2014, from around $11.5bn at the start of January 2013, according to the Central Bank of Nigeria. The minister of finance recently put the ECA balance at $4.11bn.

Oil prices have fallen more than $40 per barrel since June when oil peaked at $115 per barrel. The decline was triggered by several factors including fall in demand and supply glut largely driven by shale oil boom in the United States.

Venezuela, Nigeria, Iran, Iraq, and Ecuador pushed for cut in production to boost prices, but the group’s dominant members – Saudi Arabia, Qatar, Kuwait, and the UAE – were said to have argued to uphold the status quo.

OPEC, which supplies a third of the world’s crude oil, decided to maintain the production level of 30 million barrels per day, as was agreed in December 2011.

Meanwhile, the Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke, has been elected as the first female President of OPEC at the 166th meeting of the body in Vienna, Austria.

Alison-Maduke takes over from Libyan Vice-Prime Minister for Corporation, Abdourhman Atahar Al-Ahirish, and her tenure takes effect from January 2015.

Before the election, she was the Alternate President of the Organisation.

The OPEC conference, according to a statement from the Nigerian National Petroleum Corporation on Thursday, also elected the Minister of Energy and Industry of Qatar and Head of its delegation, Dr. Mohammed Al Sada, as Alternate President.

Alison-Madueke said the United States shale oil and gas had a lot of impact on all major oil and gas producing economies, stressing that it was a major game changer for all stakeholders in the energy mix across the globe.

The petroleum minister said that in the months ahead, OPEC would provide a veritable platform for member countries to find a remedy and deal with the issue of sliding oil prices frontally, noting that there were no quick fixes to it.

She added that the burden of falling oil prices was impacting on both OPEC and non-OPEC member countries.

Alison-Madueke said that the current trend would make Nigeria to look stringently again at the Petroleum Industry Bill, which was already before the National Assembly to ensure that the enablers therein were explored.

On plans by the Federal Government to prepare for the global fall, she said Nigeria had no recourse at this point in time other than to fully develop her gas infrastructure for domestic use.

Rising from the OPEC member countries decided that in the interest of restoring market equilibrium, current production level of 30 million barrels per day as was agreed in December, 2011 should be maintained.

The conference also confirmed the readiness of member countries to respond to developments which could have an adverse impact on the maintenance of an orderly and balanced oil market.

OPEC directed its secretariat to step up its close monitoring of developments in supply and demand as well as non-fundamental factors such as speculative activity.

OPEC noted that although world oil demand was forecast to increase during the year 2015, this would be offset by the projected increase of 1.36 million bpd in non-OPEC supply.

“As always, in taking this decision, member countries confirmed their readiness to respond to developments which could have an adverse impact on the maintenance of an orderly and balanced oil market,” the group said in a statement.

On the implications of the OPEC decision, an energy specialist at Ecobank said, Mr. Dolapo Oni, said the direct implication was that oversupply would remain in the market and oil prices would continue to fall.

“Since the announcement came out, prices have fallen sharply. As at the time the announcement was made, the price was around $76.3 per barrel, few minutes after, it has fallen to $74.5, and of course it is not relenting.

“You can understand what that would mean for Nigeria because we just set our 2015 benchmark oil price at $73. It means there will be no excess crude account if the decline continues,” he said.

Oni further said that the country might not see significant growth in production as a result of oil theft, adding that the contribution from the oil sector to revenue could significantly reduce.

Oil accounts for up to 95 per cent of foreign earnings, but production has stagnated in the past two years as a result of oil theft and slowdown in investment.



– The Punch

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