Affects nation’s revenue,
GDP …Rebound not likely in short-term
Energy
Editor With the continued negative impact of the Coronavirus pandemic
and other factors, the average price of Nigeria’s Bonny Light has
dropped by 35.66 per cent in the global market, according to the spot
market data obtained from the Organisation of Petroleum Exporting
Countries, OPEC. Year on Year, Y-o-Y, data (spot market) obtained from
the Monthly Market Reports of the organisation, showed that the average
price of the premium oil grade stood at $42.24 in 2020, thus, indicating
a drop of 35.66 per cent, when compared to $65.65 recorded in the
corresponding period of 2019. However, on Quarter-on- Quarter, Q-o-Q,
the data showed that the Bonny Light price stood at $55.55, $21.81,
$43.21, and $43.71 per barrel in the first, second, third, and fourth
quarters of 2020 respectively, as against $64.47, $70.21, $63.48, and
$64.44 per barrel recorded in the corresponding quarters of 2019.
Generally, the authoritative data clearly showed a consistent drop in
the prices of Nigeria’s foreign exchange spinner during the period under
review. Driving factors The fall in the price of Bonny Light was mainly
attributed to the outbreak of the Coronavirus pandemic towards the end
of 2019, and its negative impact on the market throughout 2020.
Specifically, the prolonged nature of the pandemic, which culminated in
lockdown, characterised by restricted movement of persons and goods, the
shutdown of industries, low demand for crude oil and petroleum-related
products, grossly slashed demand, and by extension, the price of oil. It
was also noted that the efforts of OPEC, and its allies to initiate
actions toward market recovery, was also greatly weakened by the
resurgence of the pandemic, even though the discovery of vaccines and
other developments have, to a great extent, started to assist in the
building of positive speculation, required for market rebound. Current
price The price of the product currently hovers at $64.53 per barrel in
the global market, which compares with others such as Brent, OPEC
Basket, which prices also hover at $64.19 and $66.76 per barrel
respectively. Impact Despite its relatively low nature, the price
remains over $20 per barrel in excess of the $40 per barrel of Nigeria’s
2021 budget reference price. The budget was benchmarked on the
production of 1.8 million barrels per day, including condensate, which
is not usually considered as part of the nation’s output by OPEC. READ
ALSO: Nigeria’ll be great if 40% of population can find purpose—
Taiwo-Akilapa But it had much negative impact on the nation’s Gross
Domestic Product, GDP, especially as average Nigeria’s oil output
dropped Year-on-Year, Y-o-Y, by 15 per cent to 1.5 million barrels per
day, (excluding condensate), in 2020, compared to 1.7mb/d recorded in
the corresponding period of 2019, according to data obtained from OPEC.
In its 2020, GDP report, the LCCI stated: “The economy ended the year
2020 in a negative growth region, with annual GDP growth declining by
1.92 per cent, its lowest level since 1994. From the analysis of the
just-released GDP report, the following sectors were the top-performing
in the fourth quarter of 2020. Quarrying and other minerals (48.42 per
cent); telecommunications and information services (17.64 per cent),
cement (6.59 per cent), broadcasting (4.42 per cent) and crop production
(3.68 per cent).” It added: “Oil sector growth plunged further to 19.76
per cent in fourth quarter 2020, from 13.89 per cent in the preceding
quarter. The increased scale of oil sector contraction was largely
driven by a decline in crude output. Crude oil production fell to a
record 1.56 mbpd in third quarter, third quarter 2020, the lowest level
since at least 2013. This is as a result of Nigeria’s compliance to
OPEC+ production reduction agreement aimed at stabilising the
international oil market amid covid-19 disruptions. We note that Nigeria
was compelled to make compensatory cuts as a punitive measure for
exceeding production quotas. In annual terms, oil sector growth
contracted by 8.89 per cent in the year 2020, compared to 4.59 per cent
in the year 2019. Meanwhile, the oil sector continued to grapple with
policy and regulatory challenges.” Forecast From all indications,
available data showed that Nigeria should not expect to witness the oil
market rebound in the short term, but mostly in the medium and long run,
as OPEC and other stakeholders would have been able to find lasting
solutions to the various problems that stare the market in the face.
Speaking at the just-concluded 11th International Energy Agency’s
International Energy Fund OPEC Symposium on Energy Outlooks, via video
conference, Dr. Mohammad Barkindo, OPEC Secretary-General, said: “While
there are grounds for optimism that 2021 will be the year of recovery,
there are many uncertainties ahead. Much now depends on the outcome of
this race between a mutating virus and vaccines to end the pandemic, and
on the ability of policies to provide effective support until that
happens. There remains tremendous uncertainty and prospects vary greatly
across countries.” Experts However, in an interview with Energy
Vanguard, Dr. Bala Zaka, a Port Harcourt-based Energy analyst, who noted
the various dangers of over-dependence on petroleum, including frequent
progression and retrogression of economic activities, called for urgent
diversification of Nigeria’s economy.
