FROM an all-time high of $106 per barrel in 2014 to a price crash of $28 per barrel last week, the declining prices of oil has become an issue that is threatening financial stability of countries, especially an oil dependent economy like Nigeria.
Many experts view the current oil price decline as a sign that the world’s economies are falling apart. They are worried that the decline in the energy sector will overwhelm the rest of the economy, despite the fact that higher oil and gas prices are actually bad for most businesses.
Saudi Arabia’s and Iran’s escalating conflict could have spiked oil price in the international market, but this has not been as price slumped just after rising marginally for one day, with Brent crude, the world’s benchmark oil, selling at $34.27 a barrel, showing the level of supply glut in the global oil market. The OPEC reference basket rose to $31.79 a barrel from $31.27, and fell the next day to $31.21 a barrel and last Monday it had further dropped to $27.07.
Since last year, oil firms have been taking measures to tackle the impact of the oil price slump. Over 20,000 workers have been laid-off since oil price crash in 2014.
President of Petroleum Technology Association of Nigeria (PETAN), an umbrella body of oil producers and services companies, Mr. Emeka Ene in a telephone conversation said over 6,000 technical workers, including geologists, engineers and other ancillary workers have been sacked following oil price slump.
He said: “The oil service companies employ about 20,000 technical workers with indirect employees of about 100,000. These are people that by virtue of their services do not have direct dealings with members of the Petroleum Technology Association of Nigeria.”
He said the fall in price of crude oil has affected the operations of firms that provide technical services. Ene said the current reality in the oil industry is evident in the failure of service firms to secure and implement good contracts. “At a point, oil service firms were directed by oil exploration and production companies to reduce the cost of contracts by 30 per cent,” he said.
Last year Nigeria through the Nigerian National Petroleum Corporation (NNPC) reduced its capital budget for joint venture oil operations by 40 per cent to $8.1 billion from $13.5 billion due to the slump in crude oil prices. The joint venture partners of NNPC include Shell, ExxonMobil, Chevron, Total and Eni (Agip).
According to a report recently released by Barclay, oil companies in North America are planning to cut $12.6 billion to $18.9 billion in capital spending this year on top of a $68.3 billion reduction last year amid falling oil prices.
The report said cutting spending by another 10 per cent to 15 per cent this year would bring North American oil investments down to as low as $106.9 billion.
The slump in oil price may continue despite the conflict between OPEC’s largest and second largest producers, as there seems to be no plan to cut production. If demand for oil continues to drop and supply remains unchanged, the prediction that price will fall as low as $20 a barrel this year could happen.