The price of Brent crude — the equivalent Nigeria’s Bonny light — has dropped by $3.31 between Monday and Friday after weeks of sustained rise.
As at mid-day on Monday, Brent crude traded at $67.68, a drop of $2.32 from the $70 it traded for in late January.
By mid-day on Friday, prices had dropped to $64.37 after the supply of West Texas Intermediate from the United States threatened to plunge the market into another supply glut.
In 2016, the Organisation of Petroleum Exporting Countries (OPEC) had to reach an agreement with non-member countries to reduce crude supply to the market to salvage the market.
Although the proposed 2018 budget is not threatened by the current trading price of brent crude, as the crude oil benchmark in the proposed budget is $45, a number of things will be affected by the declining prices.
For one, Nigeria will not be able to build its excess crude account as much as it would love to, since it saves the difference between budget benchmark and actual market price.
While speaking at the Nigeria annual international conference and exhibition organised by the Society of Petroleum Engineers in 2017, Emmanuel Ibe Kachikwu, minister of state for petroleum resources, had said that the cost of producing one barrel of crude oil is $27.
Kachikwu lamented that Nigeria was losing out on possible returns compared to Saudi Arabia, where it costs $9.
Falling oil prices would mean a reduction in Nigeria’s profit margin and inevitably reduced profit.
‘EXTRA COST’ MANAGEMENT
While addressing a press conference in December, Maikanti Baru, group managing director of the Nigerian National Petroleum Corporation (NNPC), said the landing cost of petrol has become N171.
By TheCable’s calculation, it translated to the federal government paying N40.70 on every litre of petrol imported.
In reaction to this, Vice-President Yemi Osinbajo and Kemi Adeosun, minister of finance, said it would only translate to extra cost on the part of NNPC and not subsidy on the part of the federal government.
Declining oil prices would mean a reduction in NNPC’s earning and their ability to cater for the extra cost especially at a time when the NNPC wants to increase petrol importation to combat scarcity.
On the brighter side, the landing cost of petrol, currently at N171 per litre, will certainly drop, and the losses absorbed by NNPC as a result will also drop.