After one and half years of continuous fall in the oil price, big players in the Organisation of Petroleum Exporting Countries (OPEC) and other countries depending on oil proceeds for sustenance are back to the drawing table.
They are in talks on how to rescue crude oil from free fall in the international market.
As expected, President Muhammadu Buhari left the country on a week’s trip to Saud Arabia and Qatar. His mission is to push for a rise in the price of the black gold to stimulate exploration and production.
OPEC members have a duty to arrest the trend and save the global petroleum industry from collapse.
Oil price fell below 12-year lows to $30 per barrel in January, raising concerns on the future of the industry. Some oil companies have fired pruned their workforce and economies of many nations have become depressed as revenues shrink.
Several efforts made by some OPEC members to persuade Saudi Arabia to agree to a cut in output have failed. The continuous pumping of crude into the market has created unmanageable glut.
It was, therefore, cherry news last week, when Saudi Arabia and Russia agreed to freeze oil output at near-record levels. The deal, though at its preliminary, has left out Iran, another major producer. It has been acknowledged as the first coordinated move by the world’s two largest producers to counter a slump that has battered economies and businesses.
Observers describe the deal as the first significant cooperation between OPEC and non-OPEC producers in 15 years, with Saudi Arabia agreeing to be open to further actions.
Saudi Arabia has the capacity to produce eight to 10 million barrels per day.
The Saudi Arabia/ Russian deal followed an earlier agreement between Qatar and Venezuela to freeze production to firm up price. Ecuador had also sought Nigeria’s support to drastically cut production.
Buhari’s visit to Saudi Arabia and Oatar could yield the desired fruits if Saudi Arabia and Russia and other OPEC members substantially cut outputs. Oil price will certainly rise, though not to the 2014 highs of $100 and above per barrel.
The crisis in oil producing countries as witnessed during the SaudI Arabia/Iran disagreement last month was of little or no consequence on oil price. The fundamentals that would have supported such rise were non-existent and they still do not exist. Since the beginning of the year, oil price has remained at about 70 per cent below its 2014 peak.
The United States (U.S.), which has been a major oil consumer and heavy importer, has become a major producer through the exploitation of Shale oil and gas. The U.S is not only self-sufficient now but striving to become a net exporter of the product.
At the turn of the year, after over four decades of imports to complement local production, the U.S. reportedly exported oil.
The emerging economies such as China and India are experiencing slight downturn and have cut down on oil imports.
Besides, these countries have taken advantage of the supply glut to warehouse products and boost reserves. However, observers believe that oil price may hit $50 per barrel by end of the year.
Buhari’s oil price discussion with Saudi Arabia is imperative for many reasons. It will benefit Nigeria, a country that depends on oil proceeds for 85 per cent of its revenues.
In 2015, the Federal Government has projected a N6.07 trillion 2016 Budget when a barrel of oil sold for between $50 and $60 per barrel. It was based on this price that the government has proposed to borrow $1.8 trillion to fund the budget and also pegged the oil benchmark at $38 a barrel.
But, even before the passage of the Appropriation Bill, oil price has been hovering around $30 per barrels after falling to $28 and below.
Therefore, a rise in oil price will not only help Nigeria in funding its budget but salvage the dwindling economy.