Higher oil price brings cheer to Nigeria and other oil-dependent economies languishing under ballooning debt and collapsing government revenues.
According to a Goldman Sach note seen by BusinessDay on Monday, consumption will return to pre-virus levels by late July, while output from major producers will remain “highly inelastic” to the rising prices.”
“This faster re-balancing during what was expected to be the dark days of winter will be followed by a widening deficit this spring as the ramp-up in OPEC+ production lags our above-consensus demand recovery forecast,” bank analysts including Damien Courvalin said in the note.
Reacting to Goldman Sach’s forecast, Ademola Henry, team leader at the Facility for Oil Sector Transformation (FOSTER), says the reality of the forecasts means more revenue for Nigeria while also hoping the volume of production does not get hampered.
“The development could translate to full implementation of the budget and reduce the government’s debt burden or fiscal deficit,” Henry states.
Nigeria, Africa’s largest economy, is depending on earnings from oil to finance its N13.588 trillion 2021 budget.
Nigeria needs the oil price to rise and in the worst case, remain steady at any price above the $40 benchmark of the 2021 budget while also maintaining an oil production estimate of 1.86 million barrels (inclusive of condensates of 300,000 to 400,000 barrels per day).
“Nigerians should ideally look forward to full budget implementation, and there ideally shouldn’t be any excuses for the inability to meet budgetary provisions,” Henry says.
Joe Nwakwue, chairman, Society of Petroleum Engineers (SPE), notes that the new crude oil price provides a good opportunity to build fiscal buffers, increase the excess crude account and possibly invest some in the infrastructure component of the Sovereign Wealth Fund (SWF).
“The government may also consider seizing this opportunity to cut down the budget deficit,” Nwakwue says.
On Monday, Brent crude, the benchmark for Nigeria’s crude oil, rose back above $63 a barrel while West Texas Intermediate (WTI) gained $1.43, at $54.98.
While the higher petrol price translates to higher revenue, it also means if the Federal Government’s pricing template is anything to go by, Nigerians may have to brace up for an increase in the pump price of petrol in the coming months.
For Luqman Agboola, head of energy and infrastructure at Sofidam Capital, the rise in oil prices may lead to an increase in petrol prices and could also impact inflation and Nigerians’ living standards.
This is going to add more financial burden on Nigerians who are already complaining of the high cost of petroleum products, which has negatively impacted the price of goods and services.
“We note that an increase in oil prices imply an increase in the price of petrol, which may either mean a further upward adjustment in petrol prices or a return to the subsidy regime,” analysts at CSL Stockbrokers, notes.