Crude oil prices have been on the rise, climbing above $71 on Thursday. The Organisation of Petroleum Exporting Countries’ projected increase in demand have raised hope of a better global fiscal performance after severe disruptions caused by COVID-19 that unsettled oil-dependent economies.
On Thursday, the price of Brent, against which Nigeria’s oil is priced, grew by 1.57 percent to open at $71.70 compared with $70.25 per barrel recorded the previous day. But despite the positive sentiments associated with rising oil price, it does not give room for much cheer for Nigeria. Analysts say Nigeria needs oil price at $103 per barrel to make any meaningful impact on its economy.
Here are five reasons Africa’s biggest oil-producing country should not celebrate the current bullish crude oil prices.
- Addiction to an opaque subsidy
Although the rising price of crude oil has raised Nigeria’s hope of effectively funding its 2021 budget, it is currently in a dilemma as the landing price of petrol continues to rise, further burdening the Nigerian National Petroleum Corporation (NNPC), which has continued to shoulder the subsidy payment. “The muddy subsidy scheme will erode any value-chain benefits for Nigeria’s economy,” Emeka Ucheaga, an analyst at EU Intelligence, told BusinessDay.
- Stagnating oil production
Despite rising Brent price, the diminishing pace of Nigeria’s oil fortune is threatening the economic health of Africa’s biggest economy as the country’s oil rigs hit the lowest in six years. Data obtained from Baker Hughes Incorporated and OPEC show Nigeria’s oil rigs, which depict the level of oil production activities by operators, have reduced to five as of April 2021, a sharp decline from a three-year high of 30 rigs count recorded in 2015.
- Higher fiscal breakeven
An analysis by BusinessDay reveals as of today, Nigeria’s economy can attain a fiscal break-even position only if oil prices climb as high as $103 per barrel. This was attained by incorporating the current official exchange rate at N380/$1, Federal Retained Oil Revenue to Gross Oil Revenue at 37 percent, Average Daily Production of 1.7 million barrels per day (OPEC quota), the current budgeted expenditure as well as budgeted non-oil + other revenue and unfunded revenue at N4.6 billion and N8.9 billion, respectively.
- A fast-rising population
For most economists, Nigeria remains “Exhibit A” of the so-called resource curse, particularly when you split its oil production across the population. Despite huge oil reserves, Nigeria has the 19th lowest production per capita among top 20 oil-producing countries; the country produces less than a barrel per 100 people. Only China produces lower due to its population of 1.4 billion people.
- Government’s profligacy
Other experts say another challenge obstructing Nigerians from reaping the full benefits of the oil boom is the increasing cost of governance, as most experts complained Nigeria’s civil service remains bloated and its lawmakers still rank among the world’s highest paid.