Nigeria’s hope for oil price recovery dims as Iran returns

Nigeria’s hope for an immediate recovery in the global price of crude oil maybe realistic in the foreseeable future, as a result of the return of Iran to oil export,  after reaching a historic agreement with six global powers yesterday on its nuclear programme that would pave way for the lifting of the western sanction on its country.

This development would further negatively impact Nigeria’s revenue, which has been at its lowest ebb since global oil prices began to fall in July 2014. Crude oil accounts for about 90 per cent of Nigeria’s export earnings and 70 per cent of total revenue.

 The parties reached a deal to freeze Iran’s nuclear programme for the next decade in exchange for gradual sanctions relief roll-out as Iran complies with a multi-step process. 

The new announcement caused a sharp decline in oil prices further compounding global production glut. Experts have however speculated that any further selloff by Iran depends on how successfully that country could raise production and sell the oil in the face of competition. Iran is expected to return to the global oil market at maximum capacity within a year.

The analysts also forecast that Iran, the second highest OPEC producer would be able to raise crude oil output by 250,000 to 500,000 bpd by the end of this year and by up to 750,000 bpd by mid-2016.

According to them, Iran’s initial increase would be enough to pull international oil prices down further as the market is already producing around 2.5 million barrels per day above demand. 

 Meanwhile, oil prices fell sharply after news of the deal emerged, with both Brent and Nymex oil futures dropping by more than 2%, posting a loss for the second consecutive day this week after the market had recorded about $1.89 to a low of $56.84 a barrel. U.S light crude, also known as West Texas Intermediate, was down $1.15 at $51.59 a barrel.

With Nigerian’s Bonny crude hovering around $55.28 and $55.99 on Monday and Friday respectively the impact of the further increase in oil production will further lead to a further price decline of even below $40 bpd before the end of the year.

Nigeria has been greatly hit in recent times owing to issues ranging from its inability to meets its 2million OPEC quota due with vandalism, oil theft and infrastructural challenges.

The country’s oil has over the past few weeks being unable to find buyers, as America has increased its shale oil production. Most of the country’s major crude oil buyers including India and China have been offered great incentives by Saudi Arabia and other Arab oil producers.

China in recent time has also turned down Nigeria’s crude due to its crashing stock market, which has greatly impacted its economy.  Energy demand in Europe and American is also likely to reduce due to summer.  

In his reaction, Professor Tam David West, a former Minister of Petroleum Resources, said that the return of Iran into the global oil market will further decline the oil price.

According to him, successive administrations have refused to plan the economy as a measure to guard against possible negative impact.

He blamed them for not diversify the economy to grow other non-oil sectors. He also noted that Nigeria can survive the price decline if the present administration continues to checkmate corruption and cut excesses.

Mr. Yusuf Muda, Director General, Lagos Chambers of Commerce and Industry, LCCI, said that the likely lifting of western sanction on Iran, would negatively impact the economy. He noted that the situation would cause a decline in global oil price, which would also hurt the country’s economy against the backdrop of decline reserve, rising exchange rate, and dislocation of the economy. He added that the development will worsen the country’s economy.

”The Federal Government needs to ensure quality control of resources management. If President Mohammadu Buhari, demonstrates prudent management, the negative impact on the supply glut on the economy would be reduced. He also needs to ensure better compliance by relevant agencies in the area of tax recovery. At this critical stage, the government must work at ensuring that other sectors are given adequate attention. This is the best time to diversify our economy.” the LCCI DG said.