NIGERIA is facing the increased threat of a reduction in revenue that may result in the government failing to meet its budgetary projections after crude oil prices fell to a one year low of $52 a barrel as a result of the coronavirus crisis.
Highly dependent on crude oil, some 95% of the Nigerian government’s revenue comes from the sale of petroleum products. Since the outbreak of the coronavirus, industrial activities have been down worldwide, which has led to a reduction in crude oil purchases, which in turn has resulted in falling prices.
Nigeria’s budget is predicated on the country selling 2m barrels of oil a day at a price of $57 a barrel, so with prices collapsing, the treasury is going to struggle to raise the $28bn required to fund its budget. Yesterday, the price of Brent Crude fell to $52.53, the lowest since January 2, 2019.
To be able to offset the revenue loss arising from the slump in oil price, Nigeria has to produce above the 2.18m barrels of crude oil per day projection in the budget. However, this will be far above the country’s production quota under the agreement with the Organisation of Petroleum Exporting Countries (Opec).
Apart from anything else, Opec and 10 other countries, includes Russia, have been reducing oil supply to support prices. In December 2019, they agreed to hold back 1.7m barrels per day until the end of March 2020 to rally global prices.
Under the deal, Nigeria is expected to export less than 1.8m barrels of crude oil to the international market but this excludes condensates, not included in the Opec quota. Opec is thus unlikely to accept Nigeria selling any additional supplies.