Tuesday saw global oil prices maintain a downward trend, crashing to $48 per barrel, well below a record high of $115 a barrel just less than a year ago. The latest fall has been tied to the common, long standing factors; oversupply by non OPEC members, OPEC’s refusal to cut production, and reduced demand from major importers such as the US, driven by its need to develop its shale resources.

The effects have been felt in similar fashion by most smaller oil producing nations. Venezuela, Libya, Algeria, and Nigeria have all been hit with significant shrunken revenues, particularly in the last quarter of 2014. Most of which, including Nigeria, have revised budget estimates for the coming year(s) to align spending with a predicted near oil future.

Nigeria, Africa’s biggest producer, capped its budget benchmark at $65 per barrel for 2015. This was only sealed after three revisions downward, following a panic-filled period in late 2014 where oil prices fell by more than 40 percent. At the time, the country’s Finance Minister, Dr. Ngozi Okonjo-Iweala, emphasized that the benchmark was a conservative one, saying; “the N4.3 trillion budget is based on a benchmark oil price of $65 a barrel, down from $77.50 this year, and a significant cut on previous budgets.”

Not so conservative anymore?

With oil prices still on a free fall, such assertion is expected to be met with more criticism from experts who clamoured for a lower benchmark prior to the presentation. In a recent discussion with journalists, Okonjo-Iweala, who was quoted by Business Today, said “that government adopted $65 per barrel oil price benchmark for the 2015 budget based on research-based projections that oil prices in the global oil market may hover around $70 per barrel from about the second quarter of 2015.”

But oil prices have since fared far from such predictions. The globally sought after commodity is now trading below $48 per barrel, more than $15 below the country’s budget estimates.

It has been speculated that prices could stabilise at about $60 to $65 per barrel by mid 2015. But with top producers like Saudi Arabia and non OPEC energy giant Russia still producing at record highs, such speculations may be tucked in the pocket sooner rather than later.

Already, Morgan Stanley, an American multinational financial service provider, is predicting “more problems” for the global oil market this year, citing a surge in output, estimated at 2 million barrels of surplus oil daily, championed by Russia and the Middle Eastern cartel, as the major factor in what could be an extended period of low oil prices.

The potential endgame

More importantly for the Nigerian economy, it makes its budget benchmark seem less conservative. At $65, should oil prices fall to as low as $30 a barrel, it might be forced to implement less appealing economic actions, ones that will not go down well with the public.

At a period of political tension, with insecurity, purported by the terror group Boko Haram, and its presidential election just over a month away, it might either seek foreign help, in the form of loans from the IMF and World Bank, or pursue more austerity measures; the later is sure to resurrect social unrest as seen during the subsidy removal exercise in January 2012, and further harm the current administration’s chances of been re-elected into power.