By Adedapo Adesanya
Nigeria’s revenue faces another threat as the Organisation of the Petroleum Exporting Countries and its allies (OPEC+) is considering a possible extension of supply cuts for the first few months of 2021 to avoid another collapse in prices.
A second wave of the COVID-19 pandemic means the oil market faces a very dangerous situation which could be dire for oil-dependent economies who are already reeling from weakened demand as a result of the global health crisis.
Earlier this week, top managers of Russian oil companies and Russian Energy Minister Alexander Novak held talks on the possible postponement of an easing of restrictions into the first quarter of 2021.
This means all 23 parties will contribute to cutting supplies to the market by 7.7 million barrels per day in a bid to stabilise the market.
The final oil output decision will be made by Russian President Vladimir Putin, who last month did not rule out extending deeper oil cuts if the market conditions warrant it.
This will also be backed by OPEC chair and biggest producer, Saudi Arabia, who had expressed its commitment to providing support for the market as it had done earlier this year with additional reduction in supply by one million barrels a day.
With the recent surge in coronavirus cases in Europe and the United States and new government restrictions further hammering oil demand, it is believed that the OPEC+ action will support the oil market.
Additional supply will only add to glut because restrictions to travel won’t allow for more use of fuel and this will crash the price of the product.
OPEC+ is scheduled to meet on November 30 and December 1 to set policy but it is not sure which position Nigeria holds at the moment.
It is, however, evident that with some European countries tightening restrictions, Nigerian crudes may be left on the sea as the majority of Nigerian oil buyers are in Europe, and with imminent lockdown, the country faces a potential scenario where oil revenue would decline.
Although oil prices are still within Nigeria’s benchmark price in the 2020 and 2021 budget presented by President Muhammadu Buhari to the National Assembly, it is evident that current demand levels, especially for Nigerian crudes, will not bring in the much-needed revenue.
To tackle the crude revenue drop, the federal government is already making effort to shore up non-oil revenue. It has approached multilateral lenders like the International Monetary Fund (IMF), World Bank and the African Development Bank (AfDB) for loans which further compound the country’s debt portfolio.
