Ever since oil was discovered in Oloibiri area of Bayelsa State (1959), the mainstay of the Nigerian economy shifted from agriculture to petroleum. Nigeria has benefited and gained more from the oil boom ever since the end of military rule and dictatorship in 1999. The prices of oil went up from $10 per barrel in 1999 to about $140 per barrel in 2008; even as at late June 2014, the oil prices remain fixed above $100.
The Organization of Petroleum Exporting Countries (OPEC) has rejected to mandate a cut in the oil production of petroleum exporting countries. Since June 2018, oil prices have fallen by more than 30%; only a major cut in the production of oil, probably led by Saudi Arabia, could make the prices of oil products to recover to the $100 per barrel level.
The plunge in the prices of oil products is generating a serious concern in a number of oil-dependent and producing states, including Nigeria. Despite the high growth in some non-petroleum sectors of the economy such as agriculture, education, technology etc, Nigeria still remains a petroleum state.
More than 90% of the profits gotten from the petroleum industry go into the purse of the Nigerian government. Petroleum accounts for up to 80% of the revenue of the Nigerian government; the revenue is estimated at $20.7 billion in (2014), which is more than 90% of the country’s exports.
The faltering crude oil prices have put the nation’s local currency (Nigerian Naira) on the crisis.
Already, the near-convergence of all rates at N360/$, except the official exchange rate of the Central Bank of Nigeria (CBN), has been distorted, with each creating a wide gap, as the parallel market settles for N366/$.
According to an analyst, Mr. Lukman Otunuga, he said that Nigeria is losing her immediate gains in the temporary trade between China and the United States (the top two largest economies of the world).
The Nigerian Naira has struggled to benefit from the present market conditions with the prices being around N370 per dollar on the parallel market.
In the month of October, it was recorded that N425 billion in estimated budget shortfalls which is due to lower revenue from both non-oil and oil sources. The Nigerian Bureau of Statistics (NBS) has stated that this was as a result of the drop in the average prices of crude oil and petroleum products, with low production arising from the shutdown of some pipelines in the country.
While it is becoming clear that the Naira stability against the dollar was due to the falling oil prices, which complicated the efforts of the Central Bank of Nigeria (CBN) to defend the naira on the parallel market; further weakness of the naira against the dollar is expected.
Despite the stance of the CBN Governor on November 29, 2018, the naira weakened by 1% to the dollar in the parallel foreign exchange (the lowest level since August 2017).
The Central Bank of Nigeria (CBN) has reacted to the naira’s weakening against the US dollar in the parallel foreign exchange market on November 29 by announcing her plans to boost the foreign exchange sales to the Bureau De Change (BDCs).
Most analysts have concluded that unless the oil prices rise sufficiently, it would be difficult for the Central Bank of Nigeria (CBN) sustain its defense of the naira since the Naira continues to show some signs and symptoms of weakness and fragility in the parallel foreign exchange market.