Since the era of the oil boom in the 1970’s, Nigeria has been a victim of monolithic economy and since then has been enjoying “crude-cash” without adequately evolving a sound policy that will put the nation’s economy on a firm foundation for steady growth.
Despite recognising the importance of establishing industries to ensure a diversified economy, the country’s mineral oil assumed greater and greater prominence over the years as a crucial production and dynamic sector. This was to the detriment of the other sectors of the economy, and given the fact that the revenue got from it was not properly appropriated but on white elephant projects.
The price of oil is of critical importance to today’s world economy, given that oil is the largest internationally traded good, both in volume and value terms, creating what some analysts have called a hydrocarbon economy. In addition, the prices of energy-intensive goods and services are linked to energy prices, of which oil makes up the single most important share. Finally, the price of oil is linked to some extent to the price of other fuels. Therefore, abrupt changes in the price of oil have wide-ranging ramifications for both oil-producing and oil-consuming countries (that is, the multiplier effect of oil prices on other products).
The sharp decline in world oil prices since late 1997 certainly qualify as an abrupt and significant change.
Oil prices behave much as any other commodity arising from times of shortage or over-supply. The domestic industry’s price has been regulated though the production or price controls throughout the twentieth century. As can be seen below is a historical period of fluctuations in the prices of oil:
1.Pre Embargo Period: Crude oil prices ranged between $2.50 and $3.00 from 1948 through the end of the 1960’s.
2. Yom Kippur War – Arab Oil Embargo
In 1972, the price of crude oil was about $3.00 and by the end of 1974, the price of oil had quadrupled to $12.00. The Yom Kippur War started with an attack on Israel by Syria and Egypt on October 5, 1973. The US and many western countries supported Israel. As a result of this support, Arab oil exporting nations imposed an embargo on the nations supporting Israel.
3. Crises in Iran and Iraq: Events in Iran and Iraq led to another round of crude oil price increases from 1979-80. The Iranian revolution resulted in the loss of 2.5 MBPD between 1978 and 1979. In 1980, Iraq’s oil production fell 2.7 MBPD and Iran’s production by 600,000 barrels per day during the Iran-Iraq War. The combination of these two events resulted in crude prices more than doubling from $14 in 197 8 to $35 per day in 1981.
Recently, the US announced it’s reduction of purchase of crude from Nigeria thereby making the country to drop from the fifth to sixth position which it occupies in the list of highest suppliers of crude to the US. According to Olivier Jakob, Swiss-based consultant “It’s a very plausible scenario that one day the U.S. won’t need to import crude oil from Nigeria, the U.S. is awash with light crude. Nigerian crude may need to be priced at a discount to go to new markets in Asia.”
Propelled by surging shale output, the United States is fighting for supremacy in the global oil market even as a pullback in crude prices threatens to challenge the boom.
The US, which only a few years ago seemed to be in the midst of an inexorable decline in domestic petroleum production, may have already overtaken other petroleum giants.
In terms of crude alone, the US pumped 8.8 million barrels a day in September, still a distance from Russia’s 10.6 million barrels and Saudi Arabia’s 9.7 million, according to official sources.
But when natural gas liquids are included, the US extracted 11.5 million barrels in August, essentially level with OPEC kingpin Saudi Arabia, according to data from the International Energy Agency.
A top official of the Nigeria National Petroleum Corporation (NNPC) who begged for anonymity, said the reduction in imports by the U.S. is no cause for alarm and will not create any problem to the Nigerian economy or its crude oil sales. “Nigeria’s sweet crude is in hot demand, so much that we cannot meet everybody’s demand. China alone can take all that we produce”, he said.
The recent decline in crude oil price has impacted negatively on the capital market activities and has become a source of worry to stakeholders.
The crude oil price fell to a record low of $87.74 per barrel last week before recovering to $88.46 per barrel.
The stock market is reacting negatively to the decline in crude prices as Market declined by 0.92 per cent. There were 14 gainers and 39 losers.
While reacting to this, the Managing Director, Highgap Securities Ltd, Mr David Anjorin, stated that anytime the crude oil price falls, it usually have negative impact on the stock market.
“Foreign investors always pull out of the market because the Nigerian economy depends majorly on crude oil earnings,” he said.
He further stated that it is a market issue but advised the Federal Government to adjust the macro economic variables to ensure stability.
“What the government should do to allay panic is to ensure macro- economic stability. This can be achieved by stabilizing inflation rate and exchange rate,” he concluded.
Another expert who pleaded anonymity stated that “From Platts write-up, it was discovered that for oil prices to go up, there has to first be a production shut-in by all OPEC members, including Nigeria and other producing countries.
“Right now, no country is willing to spearhead the shut-in (reduce supply) because this is currently a price war and a fight for market share.
“Secondly, to try and solve the problem locally, the Federal Government should look towards refining locally and becoming the central supplier of refined product to West Africa at least,” he stated.
It is hoped that the Nigerian government would take this to look at opportunities in other sectors of the economy and give them equal attentions as done to the Oil and Gas, and develop them. To diversify the economy means seeing more opportunities and generate more revenue which would invariably up shoot the Gross National Product (GNP) as well as per capita income.
Besides, so much is expected of the government on the improvement of lives and well-being of the citizens especially arising from the result of the recent re-basing of Nigerian economy making it the richest in Africa and 26th in the world.