The price of Brent, the benchmark for Nigeria’s crude oil, fell below $40 per barrel to a four-month low of $37 on Thursday, raising fresh fears of another price collapse as countries in Europe announced a new rash of lockdowns on the back of a second wave of the COVID-19 pandemic.
Brent dropped 3.5% to $37.75 a barrel in London, being the lowest since May, while US crude dropped by 3.6%, to $36 as supply continued to outstrip demand.
With the United States recently cutting its import of Nigeria’s crude oil, the country, which depends on it for a huge percentage of its foreign exchange earnings, has been looking to Asia, mostly China and India, and a number of European countries to buy the commodity.
The falling prices will negatively affect the financial stability of the country’s 36 states, which are heavily dependent on federal allocations to pay their bills.
Unless the drop in prices is halted, it will also hamper the implementation of the federal budget, even after the government at the centre recently reviewed it for the year.
The majority of Nigeria’s foreign exchange earnings come from oil and a crash in global oil prices would lead to a drop in the country’s fiscal revenues putting pressure on its overall budgetary balance.
As the lockdown begins to take effect across Europe, particularly Germany and France, demand for oil weakened resulting in a deterioration of the price of white oil products.
Libya currently produces 680,000 bpd and expects production to rise to 1 million bpd in the coming weeks, a development that has created an additional headache for the Organisation of Petroleum Exporting Countries (OPEC) and its allies.
The international oil cartel plans to reduce production in January 2021 from a recent 7.7 million barrels per day to about 5.7m barrels per day and is scheduled to meet on November 30 and December 1.
If the fall continues, it will also negatively impact the 2021 budget, which is currently under consideration by the National Assembly and is based on a benchmark of $40 a barrel.
Meanwhile, the Congressional Research Service (CRS), a non-partisan group which provides legislative research and analysis for the United States Congress, has said crude oil accounted for 88% of the country’s $4.4 billion imports from Nigeria in 2019.
In its updated research paper titled,” Nigeria: Current Issues and US Policy”, authored for the American lawmakers by an analyst in African Affairs, Tomas Husted, and specialist in African Affairs, Lauren Blanchard, the CRS said Nigeria had maintained its position as the United States’ second-largest trading partner in sub-Saharan Africa.
The document is to help the country’s lawmakers make ‘informed’ decisions on key issues in the country.
“As of 2019, Nigeria was the United States’ second-largest trading partner in sub-Saharan Africa (after South Africa) and third-largest beneficiary of US foreign direct investment (FDI) in the region (after Mauritius and South Africa).
“Nigerian exports to the United States are dominated by crude oil, which at $4.4 billion, accounted for 88% of US imports from Nigeria in 2019. According to US International Trade Commission data, Nigeria consistently ranks as the top source of exports to the United States under the African Growth and Opportunity Act,” it stated
However, it noted that Nigeria also remains a major regional destination for US exports of motor vehicles and refined petroleum products (e.g., gasoline), which are among the fastest-growing U.S. exports to Africa.
Agricultural products and machinery, the research group said, are other top US exports to the country, adding that Nigeria’s demand also has driven growing U.S. petroleum exports to nearby Togo, a regional transhipment hub.
On the US foreign assistance globally, the document noted that the USAID allocated $451.4 million in bilateral aid for Nigeria in FY2020, nearly 90 per cent of which supported health programmes.