Fears about early resuscitation of Nigeria’s economy has heightened as oil prices tumbled at the global market on Friday by more than three per cent after the Organisation of the Petroleum Exporting Countries said October output reached another record of 33.64 million barrels per day, up 240,000 bpd from September.
Nigeria, which largely depends on proceeds from its oil exports, is currently in economic recession, having recorded negative growth rate in its Gross Domestic Product in two consecutive quarters. This is reflected in drastic drop in income, employment, manufacturing and retail sales.
Although the Federal Government said it was already taking steps to take the country out of the economic mess, the continued militant attacks on oil installations in the Niger Delta and the new development in global oil market could frustrate the government’s efforts, according to experts.
Crude futures have wiped out gains made since the end of September when OPEC said it would agree to cut oil production to shore up persistently low prices, according to Reuters.
It said in a report on Friday that while investors had been sceptical that a deal to cut or freeze oil output levels would be reached at an OPEC meeting on November 30, an increasing amount of data had underscored a global skew towards oversupply.
It also noted that following the latest data, the cartel would have to trim up to a million barrels per day of output to make good on its promise to reduce production to between 32.50 million bpd and 33.0 million bpd.
It quoted a trader at Tyche Capital Advisors in New York, Mr. Tariq Zahir, as saying, “The next couple of weeks, even if they get a deal done, there’s so much oil coming to the market. Prices deserve to be here, maybe even a little lower.”
With oil price crashing to less than $50 per barrel, Nigeria’s production output has tumbled over 400,000 barrels due to militancy activities in the Niger Delta region. Oil production plummeted to 1.69 million barrels per day in the second quarter of 2016, down from 2.11 million barrel per day in the first quarter, with oil-based GDP contracting by 17.5 per cent in quarter two compared to 1.9 per cent in the first quarter.
As oil revenues dwindle, Nigeria has resorted to desperate measures including using crude to offset its debts.
For instance, the Federal Government recently said it had reached an outline settlement to resolve a protracted dispute with Western energy companies, under which the groups would be paid $5bn to cover exploration and production costs.
A report by Financial Times said Royal Dutch Shell, ExxonMobil, Eni, Chevron and Total had signed deals relating to the settlement of costs incurred between 2010 and 2015, as they also sought to forge new financing arrangements for their joint ventures in Nigeria.
The settlement, which would be a haircut on the over $6bn the oil majors claimed they were owed by Nigeria, would need the approval of two government bodies and the final sign-off from President Muhammadu Buhari, the report added.
Meanwhile, international Brent crude futures traded at $44.34 per barrel on Friday, down $1.50, or 3.27 per cent, its lowest since August.
The US West Texas Intermediate futures CLc1 were down by $1.51, or 3.4 per cent, to $43.14 per barrel.
The International Energy Agency has said the supply overhang could run into a third year in 2017, should OPEC fail to act.
In its monthly oil market report last Thursday, the IEA said global supply rose by 800,000 bpd in October to 97.8 million bpd, led by record OPEC output and rising production from non-OPEC members such as Russia, Brazil, Canada and Kazakhstan.