Brent crude oil futures fell below $70 per barrel on Tuesday, the first time since December 2021.
Brent fell by 2.75 per cent to $69.08 as of Tuesday evening, industry data showed.
The West Texas Intermediate crude dropped by 2.99 per cent to $65.71.
Nigeria’s Brass River and Qua Iboe dropped to $74.57 per barrel from $80 as of September 3.
Oil prices had relinquished the marginal gains of Monday on Tuesday, as a weaker demand outlook and concerns over global oil oversupply continued to pressure the market.
Economic data from China and the United States has raised concerns about oil demand in the world’s top two consumers, fueling fears of a potential surplus next year.
These concerns are further exacerbated by increasing production from countries outside the Organization of Petroleum Exporting Countries.
Oilprice.com reports that rising global oil supply and weaker-than-expected demand made traders increasingly bearish on oil prices.
Hedge funds and other money managers had accelerated their selling in the most traded petroleum futures contracts in the latest reporting week to September 3.
It was learnt that portfolio managers slashed their overall net long position—the difference between bullish and bearish bets—to the lowest level since exchanges began compiling such data in 2011.
Reacting to the development, a former Vice Chancellor of Crescent University in Abeokuta, Prof Sheriffdeen Tella, said, “When evaluating the impact of the price fluctuations, it’s essential to consider the average rate over time rather than just the current rate.
He argued, “Our budget is based on an average of $77/barrel, so we should focus on the average rate from January to December. If the average rate remains above our budgeted rate, it shouldn’t significantly affect our budget.”
The economist expressed optimism that the oil prices will move upwards, noting that increased taxation across various sectors could offset potential revenue losses from lower oil prices.
“We may see gains in other areas, such as taxes, as the government has been increasing taxes across the board. This could offset the impact of exchange rate fluctuations and provide a boost to our revenue,” he added.
Another economist, Ilias Aliyu, described the price drop as marginal and unlikely to have a significant immediate effect.
“For now, the impact is marginal, and we won’t notice it much. Our budget for the year must have already been allocated, and they’re probably working on the 2025 budget by now.”
He emphasised the importance of leveraging current market conditions to drive future gains, given the excess revenue already accumulated.
“If we are being very mindful of our spending, considering the excess we’ve made so far, then there won’t be a problem. However, oil prices are likely to rise again soon. So, I think we should focus on making the most of the small differences we have now and push for more significant effects in the future,” the economist said on a call.
Former Chief Economist of Zenith Bank Marcel Okeke said the combination of pipeline vandalism, organized youth involvement, and the sudden crash in oil prices has severely endangered the oil sector, which is crucial for oil exploration and production.
“The reduction in revenue, coupled with the government’s increased borrowing from dollar-based bonds, spells disaster for the economy,” Okeke said.
“The shortage of foreign exchange, particularly dollars, is a major challenge for our economy, and with the steady inflow of dollars now disrupted, the government’s budget projections are no longer tenable.”