Falling Oil Price’ll Cause Macroeconomic Instability, Inflation

oil rig
  • Falling Oil Price’ll Cause Macroeconomic Instability, Inflation — FSDH

Following the significant drop in the price of crude oil in October, the FSDH Research has revealed that there will be macroeconomic instability on Nigeria’s economy if the price continues to fall.

It disclosed this in its October ‘Monthly Economic and Financial Markets Outlook: Will crude oil market receive the required stimulus’, which was released on Wednesday.

The report stated, “Crude oil is important to the Nigerian economy as the major source of revenue for the government and the largest supplier of foreign exchange to the country. A significant drop in either the price of crude oil or production will directly have a negative impact of the fiscal position of the country. It will also cause major macroeconomic instability, particularly in the exchange rate and inflation rate.”

According to the report, the crude oil market developments in 2018 and 2019 appeared better than in 2017.

It added that, “Despite these fairly positive developments, we are aware that the crude oil market is very volatile, therefore it is crucial to learn from the events that happened in 2014 through to 2017 in order to take proactive measures against unwarranted economic crisis in Nigeria.”

The FSDH mentioned that government at all levels must intensify efforts to implement policies that will grow the non-oil sectors of the economy.

It noted that the major driver of the crude oil movements in the short-term were the suspension of the trade war between China and United States and the planned crude oil output cut.

Already Russia, it added, Saudi Arabia and Canada had agreed to cut production to drive crude oil price upward.

The report stated, “The daily crude oil production in Nigeria decreased by 0.96 per cent to 1.75mb/d in October 2018, from 1.77mb/d in September. This is based on secondary data available from OPEC’s report for the month of November 2018. Crude oil production increased mostly in UAE, Saudi Arabia, Libya and Angola while production declined in Iran, Kuwait, Venezuela and Nigeria.

“In its monthly report for November 2018, the US Energy Information Administration forecasts an average price of Brent crude oil of $73.12/b and $71.92/b in 2018 and 2019, respectively. The forecast is lower by $1.31/b and $3.14/b than the forecast in the October 2018 monthly report for 2018 and 2019 respectively.”

About the Author

Samed Olukoya
Samed Olukoya is the CEO/Founder of investorsking.com, a digital business media, with over 10 years experience as a foreign exchange research analyst and trader.

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