OIL AND OIL PRODUCERS

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Photo credit: IndiaMart


I hope the drastic fall in oil price would blackjack governments of oil producing countries like Nigeria and other oil monolithic economies to develop robust and effective structural policies that look beyond oil, on serious and practical terms. 

The continuous downward pressure on crude oil price is simply a fallout from the delay of OPEC and OPEC+ to reach a common ground on production cut, in combination with the huge drop in demand for oil, both for commercial and household consumption. Worse enough, storage capacities for oil have already near their limit, which has caused oil producers to sell at a ridiculously low price.

Worthy of mention is that, the oil market is inelastic in nature for both demand and supply sides - the damand and supply for oil is less responsive to variation in price. Oil rigs will continue to pump oil, regardless of the change in price. Many economists have described this, as "price inelastic supply".

The simple way out therefore, would  be to further reduce production output, since it is costly mechanically to completely shutdown oil wells. This appears to be the favourite option now, since oil producing countries have no control over the demand for oil, which has been the direct cause for the continuous oil price decline, cum the difficulty in projecting when the lockdown would elapse.

The hard truth is that, as the pandemic and the lockdown measures continue, most economies that heavily rely on oil as their major source of earning would find themselves in a tailspin than they are ever prepared for, and the inadvertent consequence that comes with further currency depreciation - the untold effect is better imagined.


Author: Adams Alex Osunde 

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