The oil market is largely volatile and apart from OPEC, geopolitics is clearly a major driver of oil prices. With the expectation of U. S sanction on Iranian crude oil export taking effect on November 5, 2018, and OPEC’s refusal to cover the shortfalls, Brent prices rallied to a 4-year high of $86.3/b in early Oct-18. However, merely 23 trading days after touching its year-high, sentiment in the oil market flipped as Brent prices declined over 15.0% to $72.8/b within the period.
The pullback in oil prices was underscored by the U.S waiver granted to key Iranian oil importers such as India, China, Italy, and Japan to continue importing crude from Iran despite the sanctions. Additionally, signs that top OPEC members, especially Saudi Arabia, will pump more to offset any supply gap, eased concerns of an impending shortage.
Overall, while the recent pullback in oil prices might be temporary, we highlight that oil price volatility reemphasizes the need for Nigeria to boost non-oil revenue to ease Nigeria’s long history of dependence on oil. With sharp rising cost of debt servicing, which stands at 73.3% of oil revenue based on 2018 budget estimate, the FGN must find a creative way to boost tax revenue, cut wastage and reduce the cost of governance without constraining national productivity.