Nigeria’s Revenue Projection in Danger As Russia, Saudi Arabia Set For Showdown Today

Nigeria’s N7.3 trillion revenue projection for the 2020 fiscal year hangs in the balance, depending on whether Russia and Suadi Arabia can reach a truce on planned cuts today.
Owing to the fast-spreading coronavirus, which has affected demand and global growth forecast,  the Organisation of Petroleum Exporting Countries (OPEC) has been wooing Russia into joining the ranks to cut supplies in a bid to stabilize plunging oil prices. The price of oil has seen a steady decline from $68.00 at the dawn of the disease in January to $49.87 yesterday, hence the wisdom to cut supplies to stabilize prices as proposed by OPEC.
However, Russia, which is the third-largest producer of oil in the world, has been cagey to join ranks with OPEC to cut prices, a development that Saudi Arabia is threatening to open the floodgates of oil, which would cause a glut, and threaten Nigeria’s 2020 revenue outlook of N10.3 trillion.
OPEC agreed yesterday to cut oil output by an extra 1.5 million barrels per day (BPD) in the second quarter of 2020 to support prices.
Russia and Kazakhstan, both members of the broader and informal group known as OPEC+, said they had not yet agreed to a deeper cut, raising the risk of a collapse in cooperation that has propped up crude prices since 2016.
Riyadh, the biggest OPEC producer, and other OPEC states have struggled to persuade Russia to support the move. Moscow has till now indicated it would back an extension but not a new cut. Russia, which has co-operated on output policy since 2016 in the informal group known as OPEC+, has in the past been hesitant during talks but has signed up at the last minute. Russia will join talks in Vienna today.
Russian Finance Minister Anton Siluanov said yesterday he was ready for a drop in oil prices if there was no deal.
Kazakh Energy Minister Nurlan Nogayev, another non-OPEC producer, said talks were only focusing on extending existing curbs to June.
But OPEC sources have said negotiations with Russia this time have been tougher. Two OPEC sources said on Thursday that, if Russia failed to sign up, there was a risk Saudi Arabia would insist on scrapping OPEC production limits altogether.
Suhail al-Mazroui, energy minister of the United Arab Emirates, said OPEC would not carry the burden of cuts alone and non-OPEC states had to join in. “We are all in this together. So it’s not going to be us making a decision alone,” he said.
Saudi Arabia, the world’s top oil exporter, is already cutting well beyond its quota under the existing pact, reducing its output by about 10%. Russia, with bigger total production, has reduced its output by a fraction of Riyadh’s cut.
Gary Ross, the founder of Black Gold Investors, said a worst-case scenario in which Saudi Arabia returned to full production would send oil prices down to $25 to $30 a barrel, according to a Reuters report.
That would take them to a level that would be painful for OPEC states, already struggling with prices at around $50, and also Russia, which has said it can balance its books at $40.
The proposed OPEC cut of 1.5 million BPD, if approved, would be well above what the market had expected up until this week. It would bring the group’s overall output reduction to 3.6 million BPD or about 3.6% of global supplies.
The last time OPEC reduced supplies on such a scale was in 2008 when it cut production by a total of 4.2 million BPD to address slower demand because of the global financial crisis.
Nigeria’s fiscal revenue profile remains highly susceptible to oil price shocks in the global energy market, as the oil sector contributes more than 60% of the annual budgetary income.
It may be recalled that in 2016, a similar scenario caused the global oil crisis resulted in an economic recession. As a result, fiscal revenue generated from oil sales decreased to about N0.70 trillion (representing 46% of total fiscal revenue) in 2016, the lowest in eight years (2011 – 2018). In 2018, actual oil revenue grew to N1.96 trillion, representing 64% of total fiscal revenue.
Meanwhile, the prices of gold and silver have been moving higher in recent weeks. As NATIONAL ECONOMY data shows, gold price has gone up by $90.15 over the last two weeks. This is an indication that investors who are seeing the markets crash, are scampering for safety in gold investment