Nigeria’s greatest worry from the Coronavirus outbreak will remain the havoc that the disease is causing to global oil markets and its potential for significantly crimping revenues and foreign currency earnings for Africa’s largest economy, data suggests.
Nigeria could suffer the double blow of seeing its oil out-put squeezed down to 1.5m barrels a day by OPEC which is beginning crucial talks Thursday, with price expected to further below the budget benchmark of $55. This compares with an average oil price of $64.36 in 2019 and $71.34 a barrel in 2018. Nigeria’s actual oil production in January stood at 1.78mbd.
One major fall out will be FAAC monthly allocation for the three tiers of government expected to head downwards to a range of N600-620bn. In addition, Nigeria’s foreign exchange reserves could drop to $34bn, intensifying its fiscal crisis and adding pressure on the Naira according to economists at Financial Derivatives Limited. Businesses will struggle and the capital markets will be hit further with the border closure compounding the woes of companies in the country.
A report by research firm HIS, says oil producers like Nigeria face the biggest drop ever in demand for their product with forecasts now suggesting demand collapse levels that will be steepest on record and far worse than the during the 2008 global financial crisis.
OPEC ministers who begin their crucial meeting in Vienna today gather in the Austrian capital as governments around the world shut down schools and offices with leading airlines cancelling flights and a growing number of people forced to hunker down at home adding to the huge demand fall in China where the virus was first detected.
IHS analysts expect global demand for oil to drop by 3.8 million barrels per day in the first quarter compared to 2019. Demand in the first three months of 2019 was 99.8 million barrels a day.
Coronavirus fears have already driven oil into a bear market, with Brent, the internationally traded benchmark crude falling Wednesday to $51.55, more than 24% below their recent peak in early January.
FBN’s latest PMI reading declined to by 3.54% to 51.7 points, signs that Nigeria’s economy was already wobbling before the Coronavirus outbreak but the lull in the economy is now expected to become more pronounced.
Relative to December 2019, volume of cheques fell 3.64% last month with PoS transactions also recording a drop of 10.47% according to the Financial Derivatives which said the trend confirms that economic growth in Q1 2020 will be sluggish.
