Emeka Okoroanyanwu
International Commodity Futures Company, Goldman Sachs has predicted that crude oil price may bottom out at $20 per barrel in a short time, a situation that would put Nigeria at a sever economic stress and perhaps land it in another recession.
The international benchmark crude, Brent fell to $28 this morning, the first time since 2016. This is a pulsating 54% drop.
Goldman Sachs cut its previous oil forecast on Tuesday as the COVID-19 outbreak ravages the world and its economies. Analysts at the Wall Street Investment Bank said yesterday that oil demand was contracting by an unprecedented 8 million barrels a day as factories and airlines shut down operations.
This is even as OPEC members and their allies failed to reach a compromise on production quotas.
The price cut forecast is Goldman’s second cut to price forecasts in less than two weeks. Nigeria is likely to suffer great consequences as lower oil prices will likely threaten federal, states and local council monthly allocations.
There is already a hint that the country is likely to review its 2020 budget downwards. The budget was built around a $57 crude oil bench mark.
Nigeria’s large bureaucracy may be the first to suffer lower oil price with salaries likely to be affected. Crude oil sales accounts for over 75 per cent of Federal government’s earnings and about 95 per cent of total foreign exchange earnings.
If the situation is not quickly arrested, analysts have predicted that Federal allocations to states and local governments may be cut by about 50 per cent in April or May, signalling dire economic stress for federal, states and local governments.
The fear is that when salaries are not paid on time by states and local council areas, there is likelihood of uneasiness, similar to what obtained in Venezuela and Mexico.
Many have called for diversification of the country’s source of revenue with government doing little or nothing to realize this.
