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ENERGY

Concern Over Oil Prices Slip, As Experts Fear Slide Back To Recession

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The price of Nigeria’s prime revenue and foreign exchange earnings commodity, crude oil, on Friday, continued its southward journey, marking the seventh weekly decline. Worried by the implication, experts have expressed concern that the country may slide back into recession, if stringent measures are not taken to stabilise the economy.

Report showed that West Texas Intermediate, light crude oil recorded a seventh week of loss with a fall of more than three per cent. Similarly, Brent headed for a two per cent decline on Friday to close at $65.47 per barrel, a third consecutive weekly drop.

Traders attributed the prices slip to the darkening economic outlook due to trade tensions between the United States and China, as well as the weakening currencies in emerging economies that are weighing on growth and fuel consumption.

Commenting on the development on the Nigeria economy via a telephone chat, senior lecturer, Energy/Oil & Law, University of Abuja, Dr Olanrewaju Aladeitan, said the country may slid back into recession if urgent steps are not taken to divert the dependence on sale of crude oil as a source of revenue and foreign exchange earnings.

“We both know that Nigeria’s economy is a mono product economy and even the recent recovery from recession was due to the rise in the price of crude oil in the international market.

“So if the impact of the trade war between the United States and China is leading to the price of crude oil coming down and we have a benchmark our budget on a certain amount.

“We might not feel the impact immediately, but if it continues that way, in the next few months, it will definitely have some negative impact on our economy because the budget is largely dependent on earnings from the commodity in the international market.”

Speaking on what steps government should take to avert the looming crisis he said, “The advice has always been there and they have been told that the economy should be diversified and though we are beginning look in other directions like agriculture, and solid minerals, we can do more. All the money we earn must be put into developing other sectors so they can also become foreign exchange earners.

“For instance, the United Arab Emirates (UAE) build their various cities such as Dubia with their oil money. So we can begin to look at the tourism industry, solid minerals and put some of our earnings in some of this sectors. Open new opportunities and not continue in the same oil way.

“We also need to begin to look critically at the issue of having our crude oil refined locally, so that we can sell refined petroleum products to all our neighboring countries, that will earn us some income,” he said.

Also speaking in the same vein, director of research, African Centre for Leadership, Strategy and Development (Centre LSD) Mr Monday Osasah, noted that the move will have serious negative impact on the country. He warned that some capital projects already earmarked for 2018 may not be executed.

“It is very clear that if crude oil prices are coming down and you know that even our planning in terms of budgeting is based on oil, then it means we will expect some shock as a nation.

“And the shock is still going to be very pronounced because at the moment, we are also not saving the way we should especially when oil prices were up. So this, to a large extent, is going to affect the planning in terms of government’s capacity to be able to implement some of the programmes it has earmarked to embark on,” he said via a telephone interview.

Meanwhile, United States Investment Bank Jefferies on Friday, told Bloomberg that there was an emerging “lack of demand” for crude oil and refined products.

Singaporean bank said on Friday that Chinese data showed a “steady decline in activities” and that “the economy is facing added headwinds due to rising trade tensions with the United States.”

Also, just as demand seems to be slowing, supply may be rising, increasing the drag on markets. “Investors remain cautious as Wednesday’s surprise gain in United States stockpiles remain fresh in their minds,” the bank said on Friday.

In spite of these bearish factors, analysts said prices were prevented from falling further because of the United States sanctions against Iran, which target the financial sector from August and will include petroleum exports from November.

“Iranian crude exports were still near two million barrels per day in July and will likely begin to fall dramatically in August with financial sanctions taking effect. With oil export sanctions now three months out, we expect exports to fall by more than 500,000 bpd by the end of 3Q,” Jefferies said.

“We maintain our view that Brent prices will exceed $80/bbl before the end of the year,” he said.



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