The price of Brent crude fell to a 5-1/2-year low of less than $57 a barrel yesterday, depressed by a global supply glut which outweighed concerns of lost supply from Libya where battling militias have closed ports.
According to Reuters, the oil benchmark recovered ground later but was on track for its second weakest month since the global financial crisis of 2008, and traders said the sell-off that has halved crude prices in six months showed no sign of coming to an end.
Oil markets have been heavily oversupplied this year due to increasing output of high quality, light oil from U.S. shale and lower-than-expected consumption as a result of faltering global economic growth and competition from alternative fuels.
Several members of the Organisation of the Petroleum Exporting Countries (OPEC) have suffered supply disruptions in recent months, but this has had little impact on prices.
In Libya, clashes between rival factions have closed oil ports and terminals this month, reducing exports from the OPEC producer, which used to sell over 1 million barrels per day of crude to world markets, to almost nothing.
OPEC, which pumps a third of the world’s oil, had been expected to trim output to try to stabilize prices, but it decided in November to keep production unchanged and let the market find its own level.
The news agency reported PVM Oil Associates analyst, Tamas Varga, as predicting no let-up in the sell-off, saying “the bears” were in firm control of the market.
“The trend is still down and supports are expected to be under pressure. It is not recommended to go against this trend”, he was quoted as saying.
Reuters’ technical analyst Wang Tao said Brent may fall to $54.98 while U.S. oil is expected to drop to $52.10.
Nigeria’s economy has come under pressure in recent times primarily because of the steep drop in oil prices. The commodity, which accounts for over 90 per cent of the nation’s export earnings and approximately 70 per cent of its fiscal revenue, fell by over 40 per cent in a six-month period in 2014 from $115 a barrel to below $70.
The development resulted in a decline in the external reserves, prompting immediate responses from both the Federal Ministry of Finance and the Central Bank of Nigeria (CBN).
As part of the government’s response to the oil price slump, the Minister of Finance and Coordinating Minister for the Economy, Dr Ngozi Okonjo-Iweala, initially announced that the economic team had approved a $5 per barrel reduction in the 2015 budget benchmark price for oil from $78 to $73 per barrel. However, as the price of oil continued to fall, she said that the figure had been further lowered to $65 a barrel.
She further revealed that the government had introduced a series of austerity measures aimed at cushioning the impact of the oil slump on the economy and to generate additional revenues to fund the 2015 budget.
She explained that the measures would be implemented from the beginning of the second quarter of 2015 and would significantly boost the ratio of non-oil revenues to oil revenues.
On its part, the CBN responded to the falling oil revenues by devaluing the naira by eight per cent-officially setting the exchange rate to N168 to one US Dollar. It also raised interest rates to a record 13 per cent in addition to introducing more tightening measures aimed at curbing capital outflows and stabilizing the naira, which in the last quarter of 2014 lost 9 per cent against the dollar.
Although the apex bank insists that the measures it has introduced will bolster the naira, the currency continued to trade for N180-N182 to the dollar three days after Christmas.
Analysts believe that unless oil prices head north, the naira will continue to struggle thus causing more hardship for Nigerians.
-NEWSWATCH TIMES-
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