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Keep the oil tap flowing or get burnt again, analysts warns as crude touch $40 p/b

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For the federal government of Nigeria, this is a reassuring news-global oil markets jumped more than 5 percent Monday with Brent touching $40 for the first time in 2016. But analysts warn it is not enough to disperse the many concerns raised by prolonged low oil prices that have been responsible for wider economic mayhem in recent months.

“It is a positive development, but we still have to look critically at the country’s production levels, try to get it up or at least keep the tap flowing at a reasonable level,” says an Investment banking CEO in Lagos Wednesday, “or we will be telling the same sorry story when it eventually normalizes at $40-$50 as predicted by the likes of Goldman Sachs by the end of this year (2016).”

Currently, Nigeria’s production levels (disputed) is stuck around 1.5-1.8 million barrels, short of expected 2 million. Analysts worry that at the current level, revenue receipt will still not be enough to fund the 2016 N4.49 trillion budget with a N1.04 trillion deficit out lay.

The $40-$50 oil prediction is driven largely by the exit of low margin producers, Emerging Markets production challenges and continuing discussions among top energy ministers including that of Saudi Arabia and Russia, two of the world’s largest crude oil exporters. Major OPEC swing producers including Nigeria are also engaged in discussions about a new price equilibrium that could raise the price levels to about the $50 mark by the end of the year.

While the current gains will not immediately reflect in the revenue register until perhaps 2 months down the line, industry watchers would want to see a proactive response to the country’s oil industry dilemma particularly, the refineries which are often plagued by a plethora of failures, sabotage and inefficiencies.

“We still may have to borrow up to 50 percent of funding requirement or forgo almost all capital funding for the year at our current production level even if the $40 p/b price is sustained to Q2 2017,” a Lagos based banker told G&BJournal.

The fall in oil prices devastated the economy with government revenue plummeting 50 percent down in the past 6 months. The current GDP growth projection is at an abysmal 2.7 percent YoY, the result of the revenue loses. Tax revenue and the currency (Naira) restriction is not kind either and the impact is hitting the banking sector harder with almost all of them struggling with high trading debts.

Access Pensions, Future Shaping
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