Nigeria may be in for a terrible financial quagmire as the price of Brent oil drops below $50, for the first time since 2009.Nigeria had based its N4.3 trillion budget for 2015 on an oil price of $65, but the projection appears to have exploded into smoke.
The budget, which allocates 91 per cent of projected expenditure on recurrent expenses may need a rejigging and a drastic cutback on the money to be spent on public officials and National Assembly.
The Nigerian budget for this year had been twice reviewed. Analysts said Dr.Ngozi Okonjo-Iweala and her team may need the big scissors all over again.
The new price regime was triggered by OPEC’s production stance, oversupply, weak demand and the strong dollar.
In morning London deals, Brent North Sea crude for delivery in February dived to a 5.5-year low at $49.81 a barrel. New York crude had already slumped under $50 on Monday.
“The move below $50 shows how momentum is everything here,” CMC Markets analyst Michael Hewson told AFP.
“With no sign that OPEC will do anything about over-production, it seems likely that we could well see further declines towards $40 in the coming weeks — particularly given that demand shows no signs of picking up.
“Weak growth and weak demand in China and Europe are likely to continue to be the main drivers as the battle for market share intensifies. We’ll probably still see sharp swings in the interim but the direction of travel seems clear, unless OPEC acts.”
Crude futures had tumbled Tuesday to fresh multi-year lows in another stormy day for global financial markets, as OPEC kingpin Saudi Arabia blamed weak global economic growth and said it will stick to its guns on production policy.
On Monday, Saudi Arabia reportedly cut its European and US export prices in order to maintain market share.
Oil has lost more than half its value since June owing to a global supply glut and slowing growth in major world economies that has hurt demand.
Losses accelerated in November after the 12-nation Organization of the Petroleum Exporting Countries (OPEC) cartel decided not to cut output in response to lower prices and oversupply.
OPEC opted to keep its oil output ceiling at 30 million barrels per day (mbpd) despite ample global supplies.
Analysts said the move was aimed at stifling competition from new market players with higher costs — in particular US shale oil producers.