Elected as in 2015, Muhammadu Buhari as an incoming president had the faintest idea that oil price would not be so benevolent to his administration. The oil ‘spell’ was even magnified given the dependency of Nigeria’s fiscal coffers to oil price and the determination of the latter by big whips like Saudi Arabia in OPEC and the US and Russia in OPEC+. To be fair, the wobbly oil price trend since 2015 is somewhat enough to cut Buhari some slack.
In the erstwhile administration of Goodluck Jonathan, crude oil prices peaked at $130 per barrel in March 2012, but by January 2015, when the administration was rounding up, prices crashed to $46 per barrel. This trend ushered in President Buhari and oil prices has since never assumed three digits. This trend is displayed below. Comparatively, oil price has been abased since Buhari’s administration commenced. As a follow up to this trend in oil price, Goodluck’s administration could boast of GDP growth within a range of 4% – 6%. On the downside, Buhari’s administration has witnessed a full-blown recession and a maximum growth threshold of 3%.
A few pointers to the causes of the downward evolution of oil prices since Buhari’s administration began. The emergence of OPEC+, an association of non-OPEC oil producers have permanently clipped the wings of Saudi Arabia’s led OPEC. The production of shale oil in commercial quantities in the US has drowned demand for Nigeria’s crude. Furthermore, global economic events like the trade war, Brexit and the novel coronavirus have pushed back industrial activities, plunging the demand for Nigeria’s crude. These factors combined with oil glut has keep prices relatively low.
Despite the low oil prices, Nigeria cannot produce enough crude due to decrepit refineries and lack of commercial storage. The high rate of gas flaring, absence of a virile petrochemical and hydrocarbon industry and the relatively low preference for Nigeria’s bonny light to other crude oil varieties like ‘sweet’ crude has made it difficult for Nigeria to make enough even from the low oil prices, pulverizing fiscal revenue.
Clearly, oil price has not shone its light on President Buhari in his administration so far. Albeit, there are other value chain in the oil and gas industry that offer alternative solutions to Nigeria’s fiscal woes. It is high time for Nigeria to look away from the black crude to natural, gas, a hydrocarbon with lots of revenue potentials for Nigeria. It is also important to develop the petrochemical industry that supplies petroleum residues for production of items that are otherwise imported. Also, learning from Saudi Arabia’s IPO of Aramco, the upstream oil sector, particularly refining should remodel to accommodate private investors. Nigeria must also improve its oil and gas infrastructures especially pipeline and storage facilities.
Co-written by Demola Akinwale and Michael Ogunremi
Demola is Analyst Intern at Hash Analytics.