The fall of oil prices around the world has caused panic, especially in Nigeria. As an economy that solely depends on the profits from the sale of crude oil to function, what does the oil price crash mean for Nigeria?
How much is a barrel of oil?
According to several reports, the price of a barrel of oil recently dropped to as low as -$20 in response to the coronavirus pandemic.
Why did the price oil drop?
There has been a drastic reduction in the consumption of oil. People have parked their cars at home due to the lockdown order in place in many parts of the world, flights have also been cancelled due to restrictions and airports shutdown; a large part of the world’s economy that uses energy have shut down.
All these translate to less demand for oil.
However, on the other hands, supply has not fallen as oil-producing countries still continue production, though they recently agreed to slash global production output by 10 million barrels per day or about 10%.
What does this mean for Nigeria?
Nigeria’s economy depends on oil revenues. So, what this simply means that the profit the country is supposed to make from the sales of crude oil will be affected.
And since Nigeria’s budget is made based on the price of oil, the Nigerian government may not be able to get enough funds needed to run the country.
Should the average Nigerians be worried?
The oil price crash has already affected the national budget.
The federal government has already been forced to slash the 2020 budget by N312 billion following the crash of crude oil prices.
The 2020 budget has now been cut from the initial N10, 594, 362,364,80 to N10,276, 887,197,728.
Some of the fallouts of the oil price crash for Nigeria will be inflation or reduction in the value of naira. This means that the prices of goods and services will be increased. For instance, if you are buying something for N200, it may increase to N300.
What can the government do to protect Nigerians?
One of the things the government should do is to develop other parts of the economy such as agriculture to reduce the dependence on oil.
For years, the main source of revenue for the Nigerian government has been the sale of crude oil, a situation that has not helped the country’ economy
Nevertheless, experts have predicted that even though the price of oil has reduced drastically now, this does not mean that the price will not increase in future.
It has been predicted that things may return to normal in the oil sector after the pandemic is over.
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