As crude oil price go below $100 per barrel, Nigeria may have to borrow in order to fulfil its financial obligation, while increasing the risk of debt distress as its debt service burden heightens, Bismarck Rewane, Chief operating Officer (COO), Financial Derivatives Company (FDC) Limited, has said.
On the other hand, the price of gas, Nigeria’s second largest export rose during the period, Crude oil, which accounts for approximately 75 per cent of Nigeria’s exports, is a major source of revenue for the country. A fall in the price of oil as well as a constant decline in oil production is expected to reduce government revenue.
In a recent FDC publication, it said, the price of oil touched below $100pb in July as fears of a global recession, which could slowdown demand outweighed concerns on supply tightness. It fell to a low of $99.10pb on July 14th before rising to close the review period at $109.58pb on the concerns that the OPEC+ is unlikely to further increase supply in its meeting on August 3rd. On the average, oil prices fell by 10.33% to $104.93/pb in the month of July from $117.01/pb in the month of June.
Domestic oil production slumped by 4.8 per cent to 1.18million barrels per day in July 2022, down from 1.24 million barrels per day in June 2022.
The country’s oil rig count, on the other hand, remained constant for the fourth consecutive month at 11 in July. OPEC’s crude oil production increased by 220,000 barrels per day to an average of 28.90 million barrels per day in July from 28.68 million barrels per day produced in June. Oil production increased principally in Saudi Arabia, UAE, Iran, Kuwait, and Gabon, while it declined majorly in Libya, Angola and Venezuela.
The OPEC+ has agreed to increase oil production by 100,000bpd in September, down from the agreed monthly increase of 643,000bpd for July and August. However, the fears of possible slowdown in demand as recession looms could keep oil price below $100pb in the near term.
The lingering problem of oil theft and pipeline vandalism will continue to limit Nigeria from meeting its OPEC quota, which is now currently at 1.83mbpd as at the last OPEC+ meeting in August.
The price of gas was relatively high in July as hot weather conditions in the US and Europe exacerbated demand for cooling gas, while gas supply remained low. Russia continued to cut its gas supplies to European countries in retaliation for the EU sanctions on its economy, and to European countries who fail to pay for its supplies in the Russian currency known as the roubles.