As Nigeria’s primary commodity export by a wide margin, oil remains the lifeblood of the national economy.
Numerous booms and busts in the country over the past two decades have been directly attributed to the price of oil on the global market, given that oil and crude petroleum provide around $55 billion to Nigeria’s GDP and employ hundreds of thousands of people.
Therefore, when assessing our economic prospects in the year ahead, it is worth paying close attention to oil price outlooks in the future. Let’s take a closer look at how oil prices could affect the Nigerian economy and Nigerians in 2022.
If oil prices rise
First, let’s consider the prospects for an increase in global oil prices in the year ahead. While oil prices had been slowly falling at the tail-end of 2021, things began to reverse direction at the beginning of 2022. Rising global instability and concern over energy supplies have helped the price of oil rebound, meaning that the chances of more sustained growth in the months ahead are very real indeed.
If oil prices rise, the most obvious direct impact will be on the state’s coffers, which will fill up from tax and state-backed oil revenues as they have done in the past. If demand keeps pace with rising prices, then wages for salaried workers may increase, as increased revenues trickle down to the wider economy. However, it is worth noting that a rise in oil prices is not a universal good.
Studies have shown that rising oil prices tend to correspond with falling output in other sectors of the Nigerian economy, particularly transport and agriculture. This is because these crucial industries rely on stable oil prices for their inputs, and higher prices mean lower productivity when oil for tractors or trucks becomes too pricey.
If oil prices fall
At this point, the chances of oil prices falling remains an equal possibility. The IEA has precited the price of a barrel of crude to fall continuously in 2022 and 2023 and will sit at $68 a barrel by 2023, compared to $79 a barrel at the end of 2021. The immediate impact on Nigeria will likely be negative since falling oil prices have triggered recessions in the past.
Government revenues will fall, and major employers in the energy sector will cut back on R&D and reduce their workforce, leading to negative knock-on effects in the wider economy. However, falling oil prices can and do have a more positive impact on Nigerian consumers, since cheaper oil means cheaper energy for homes and businesses.
Whichever way the oil price goes, Nigerian consumers can attempt to participate in the oil market and take advantage of price trends. Thanks to global online trading platforms like INFINOX, Nigerians can now take long and short positions on oil CFDs. This allows anyone to speculate on the price of oil and other commodities, with the potential to make a profit if oil prices either rise or fall. This is assuming that your speculation proves correct, as you may otherwise make a loss.
As more and more Nigerians participate in retail trading, this sort of activity could become a feature of the country’s oil sector in the months to come.
While the future is uncertain, it’s clear that oil prices will continue to have a direct and immediate impact on the Nigerian economy and on Nigerian consumers. Watch this space to see which way things go.
