African Energy Producers face Oil Price Pressure
With global oil prices at record lows, American consumers are rejoicing at the pumps. President Obama recently hailed low oil prices in his State of the Union address, stating the typical American family would save $750 at the pump this year.
For families in African oil-producing countries, however, the situation is starkly different. The drastic drop in oil prices has, and will continue to have, serious negative impacts for African oil exporters. Investors should be wary of fiscal, monetary, and political risks arising from the changing oil market.
A rapid drop in prices
After five years of relative stability, the global oil market has witnessed a sharp decline in the price of crude oil. Falling 50% since June and 40% since September, oil prices have dipped below $50 a barrel. This marks the lowest prices the international community has seen since 2009.
Though financial futures markets indicate that the price will rebound within the next year, there remains uncertainty over the future trajectory of the market. The one thing economists remain fairly certain about, though, is that prices will not fully recover. The years of over $100 per barrel are over, and oil-exporting countries are reeling from the shock.
Budgetary imbalances
Since governments use a benchmark price for oil to estimate national revenue, the sudden decline in oil prices has caused many oil-exporting countries to revise their budgets down. The below graph compiled by the IMF shows how countries have revised the benchmark oil price. Many countries anticipated a price of over $100 a barrel in 2014, and even after revising down in early 2015, the new benchmark is still higher than the world price.