In the last year and half, a pair of gigantic scissors ripped through the fabric of the oil industry, slashing plenty jobs and leaving the industry in bits and pieces. This scissors was wielded by economic logic, as it was no longer viable to maintain such a large industry, seeing as the prices of oil had gone to that mountain where the devil showed Jesus the world from – and tumbled down. A jarring number of oil workers have lost jobs and the very few left are living low-key lifestyles. They no longer make it rain like before or run their generators from morning to night even when there is NEPA light. They now ask “Who is this?” when you call, and no longer grease your palms with ready crisp naira notes when you hail them with “oyel money”.
All of this funnels down to a distinct root cause. OIL PRICES ARE DOWN.
You see these words getting bandied around on the TV, and observe most unrelated companies cutting down on their workforce as a consequence. And you find yourself wondering at the consonance between people making plastic or the banking industry and how they are being affected by oil prices.
Well, take my hand, let me show you the way.
Let’s begin with economics. When supply is high, prices drop, and when supply decreases, prices skyrocket. So oil prices are down because supply is high. Before the real economists come in and eat me up like sweet nkwobi, I recognize that there are more factors that affect the prices of oil. But seeing as this is a diary and not a thesis, I aim for simplicity.
Why is there excess supply? Let me start from here. For all the investment put into drilling oil by the oil companies to be profitable, oil needs to sell at a certain price. Let’s say $80 per barrel – but note that this number varies, depending on where and how the oil is drilled. If it sells above that – which it does most times – Baba God, na your handwork eh! Sometime in 2014, oil sold for almost $115 a barrel. There’s a mechanism other than demand and supply that also drives the prices of oil, but remember, we are keeping it simple. Now, this is where the Americans come in. Maverick engineers there discovered another way of producing oil, which is cheaper and will sell for lower. They call the process “fracking”. Now America needs about 19 million barrels a day, and locally, they produce about 5 million a day, which means that to meet their needs, they have to import. But with this developing industry of theirs, it means they import less and, if allowed, will be able to produce cheaper and take over the market from the ogas at the top of the market currently.
So therefore, all the other oil-producing countries – seeing as their market no dey too sell for America, and if allowed to continue to develop that technology, their market no go even sell anywhere else – increased supply and lowered prices so that they can sell their own oil and cripple the fracking industry, which is still in sorts of natal stages. Lowering prices tumbles share prices and most investors left the fracking companies to dry, and most of them are going to belly-up, seeing as they do not possess the same healthy backbone as the oil companies.
But this does not make sense, you say. If we lower prices, we earn less. Well, the leading culprits in this undercutting of prices are the OPEC countries, chief among them being the Middle Eastern ones. Truth is lowering prices by increasing supply hurts them but not as much because during the boom, they saved most of their money, unlike Nigeria where all the plenty money we made grew wings and did ‘fly away Peter, fly away Paul’.
So since oil prices are low, oil companies realize they are even struggling to sell the ones they have produced. So they stop drilling and exploratory activities. Rigs depart, jobs disappear and oil workers are left checking online to see if the prices have started rising again because the OPEC countries have decided to have sense and ration their supplies so that the prices can be driven up and they can go back to the club and have the hype-man announce with gusto: “Make way, make way! Oil money in the building! If you ain’t got money, you ain’t got shit! We talking money, you talking bullshit!” as well as other tomfoolery they yell when your neighborhood-friendly oil workers storm your city.
In Nigeria, this situation has a multiplier effect, seeing as we run a blind economy led completely by holding on to the oil industry’s walking stick. Therefore, as oil people cut down and take their money away from banks, banks cut down, sack workers and no longer give out loans, and companies who need these loans go bust. The Government, whose budget is based on high incomes from oil revenue, is left chasing its tails, which would have been totally avoidable if they had diversified when they had the chance.
Things are looking up though. The rumor mill is brewing more positive news of rigs returning than leaving, unlike before. It is our hope that my brothers and sisters out there will all return out here, because families are starving and it’s most times not easy adjusting from good income to no income, no matter the sphere of life you work in. I certainly hope the jobs come back as most of the skills in this industry aren’t really transferable.
I pray. I hope. I yearn. E go better.
My name is Uncle Stephen. This is my diary.