Nigeria and Angola face oil price squeeze

Issued the following announcement on May 4.

The so-called “second tier producers” face particular pressure as a result of the price war, started by Saudi Arabia and Russia in March this year. Those two countries, and the US, have the financial wherewithal to ride out the storm but others are less well placed.

Angola’s debt-to-GDP ratio has risen sharply over the 2015 to 2019 period, while Nigeria has also seen this rise, although to a lesser extent. Angolan debt has risen to nearly 100% of GDP, from below 60% in 2015.

Other second tier producers identified by Verisk Maplecroft include Canada, Norway, Iraq, Kuwait and Venezuela.

In addition to the oil price crunch, countries are also facing the coronavirus challenge, where governments are forced to choose between endangering their citizens, and keeping economies going, or enforcing lockdowns and seeing GDP fall.

The International Monetary Fund (IMF) announced its biggest coronavirus-linked facility this week, with the provision of $3.4 billion to Nigeria. As the agency noted, though, falling oil prices and reduced demand are taking their toll, with Nigeria’s oil and gas exports – accounting for 84% of the total – expected to fall by more than $26.5 billion.

The Nigerian economy will shrink this year by almost 3.5%, it said.

While larger producers have been able to continue accessing debt markets, this looks unlikely for Angola and Nigeria.

Moody’s Ratings put Angola on review for downgrade at the end of March driven by concerns about the oil price shock, a tighter financing outlook and the country’s need for borrowing. Hydrocarbons make up 96% of Angola’s exports.

Verisk Maplecroft raised the possibility that China would be a beneficiary of this year’s economic turmoil. The country’s national oil companies (NOCs) “are well positioned to snap up newly cheap mature fields and other assets. In Africa, a combination of oil-backed loans and western majors seeking the exit presents opportunities from Chad to Angola.”