The price of crude oil is trading at about $30 per barrel in the international market dropping from a peak of $114 in June 2014. Oil production from Nigeria now faces a slowdown as some fields face an imminent shutdown if the low oil price persists.
Industry analyst said operating some of the oil fields in the country is becoming unprofitable, with the selling price of oil being driven down close to the production cost level.
The price of the Nigerian crude oil, Bonny Light, has fallen to $29.47 per barrel, according to the latest data obtained from the Central Bank of Nigeria.
Nigeria, Africa’s top oil producer, relies on crude oil for most of its export earnings and government revenue. Oil production in the country has continued to hover between 1.9 million barrels per day and 2.3 million bpd in recent years.
According the UK Telegraph, The Organisation of the Petroleum Exporting Countries (OPEC) has given the clear indication that it is winning its oil price war with the US shale industry.
The group which comprises of 12 mainly Middle Eastern producers has said that output from outside the cartel in 2016 will be over 100,000 barrels per day (bpd) lower than it had previously predicted, as lower prices shut down more production.
According to OPEC monthly market report, it said: “There are signs that US production has started to respond to reduced investment and activity. Indeed, all eyes are on how quickly US production falls.”
Coincidentally, the strategy has also led disaffections among the organization, with members such as Venezuela, Nigeria and Iran moving the idea of an emergency meeting to discuss revising current strategy.
Majority of OPEC nations depend almost entirely on oil receipts for the majority of their foreign currency earnings. Even the richest and most steadfast members, such as Saudi Arabia, are being forced to revise their budgets and cut spending to adapt to lower prices, which investment banks such as Goldman Sachs now say could fall to as low as $20 per barrel.
The report said that the number of oil drilling rigs in the US declined in the week ending September 4, down by 13 units to 662 rigs. The overall rig count in the US – which is seen as a key barometer for the industry – is now down 864 units year-on-year.
Nigeria is Africa’s biggest oil producer but lacks sufficient refining capacity and has to import most of its fuel.
President Muhammadu Buhari has already said falling oil prices are having “a painful effect” on the country’s economy.
Oil prices fell to their lowest level since 2003, sinking below $28 a barrel before recovering slightly on Monday.
Analysts concluded that the drop is being driven by oversupply, coupled with a fall in demand because of a slowdown in economic growth in China and Europe.
In a case of adding salt to an injury, the lifting of Western sanctions on Iran is poised worsen the existing problem, as the country prepares to pump more oil into the market.
The effects of falling prices are being felt by economies around the world.
