‘FG Revenue to Remain Vulnerable to Oil Shock without Diversification Efforts’
The Federal Government revenue is expected to remain vulnerable to oil shock without intentional diversification efforts, analysts hinted as Oil Cartel made adjustment to oil supply for first quarter in 2021.
With significant chunk of foreign earnings coming from oil exports, Nigeria’s economy remain driven largely by petrol-dollar.
As a result, shock in the global oil price as well as oil cartel supply cut have always impact the domestic economic performance as non-oil contribution stands low.
Tuesday marked the end of a two-day heated meeting between the Organization of Petroleum Exporting Countries (OPEC) and its allies on oil production cuts for the first quarter of 2021.
After serious deliberations, the group and its allies reached an agreement to reduce the production cut to 7.2 million barrels per day (mb/d) in January, 7.13mb/d in February and 7.05mb/d in March.
This translated to an average of 7.13mb/d for the first three months compared with 7.7mbpd as of December.
Analysts at CSL Stockbrokers said this decision was made to ensure stability in the global oil market on the back of the new variant of the virus which has resulted in renewed lockdowns and restrictions being put in place by many countries.
Nigeria, being an oil producing country, takes a share of the oil production cut at about 0.31mbd for Q1-2021.
According to CSL Stockbrokers, any production cut, even a milder cut does not bode well for the Nigerian economy given how significant oil revenue is to its economic stability.
“We recall that in April 2020, the OPEC+ cartel agreed historic production cuts aimed at stemming the downward pressure on oil prices by curtailing the indiscriminate production and supply of crude into the market”, the firm stated.
It said an unprecedented deal of oil production cut close to 15.0mb/d was agreed between the alliance of OPEC+ producers, G-20 energy ministers and other oil producers.
As part of these agreement, analysts recalled that Nigeria’s production quota was slashed lower to 1.4mbd from 1.7mb/d.
“This deal resulted in severe pressure on the economy in light of weak fiscal buffer and frail external conditions faced by the country”, CSL Stockbrokers explained.
That said, oil prices, despite some decent recovery, remain well below pre-pandemic levels and is expected to remain below pre-pandemic levels in 2021 until nations begin to see the effectiveness of vaccines which should aid oil price recovery.
“The newly agreed cuts would see Nigeria’s oil production quota up slightly to 1.52mb/d from 1.47mb/d as of November 2020.
“We reiterate that without intentional diversification efforts being made by policy makers, the country’s revenue will remain vulnerable to shocks in the international crude oil market”, CSL Stockbrokers stated.
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‘FG Revenue to Remain Vulnerable to Oil Shock without Diversification Efforts’
