Nigerian economy threatened as oil prices drop to lowest level in seven years

The international oil benchmark, Brent crude, tumbled on Wednesday to $56 per barrel, its lowest level in seven years as the United States-China trade war worries gripped the market.

The decline in oil price imposes a serious threat to Nigeria’s economy as the 2019 budget is based on an oil benchmark of $60 per barrel.

The further decline in oil prices followed an unexpected build in US crude supplies and fears of lower crude demand due to the deepening trade tensions.



Brent crude, against which Nigeria’s oil is priced, fell by $2.60 to $56.34 as of 8.10pm on Wednesday. It has lost more than 20 per cent since hitting its 2019 peak in April.

It can be recalled that the oil price extended its decline on Monday, trading below Nigeria’s $60 per barrel budget benchmark.

The 2019 budget, which was signed by President Muhammadu Buhari in May, was based on oil production of 2.3 million bpd (including condensates) with an oil benchmark price of $60 per barrel.

Brent has plunged more than 12 per cent after US President Donald Trump said last week that he would slap a 10 per cent tariff on a further $300bn in Chinese imports from Sept. 1, sending global equity markets into a tailspin, according to Reuters.

“The market continues to trade lower on concerns about demand growth and the idea that economic growth can be impacted by the trade war,” Reuters quoted Gene McGillian, vice president of market research at Tradition Energy in Stamford Connecticut, as saying.

“The market isn’t concerned about anything other than how demand is going to play out through the rest of the year,” he said.

The oil markets extended losses after US government data showed that US crude stockpiles rose unexpectedly last week, increasing 2.4 million barrels, compared with analysts’ expectations for a decrease of 2.8 million barrels.