U.S. Oil Boom Upends Nigerian Exports

         To summarize this article, Nigeria’s economy has taken a hit this past year because the United States has increased their production of crude oil. Because of this increase in oil production, we have become less dependent on foreigners for oil which caused us to sharply decrease the amount of lighter-sweet crude oil from Nigeria. This is a major concern for Nigeria because 95% of their exports are oil based and much of their supply was shipped to the U.S.  Moreover, the U.S. has also given licenses to Shell and Vitol to export some of their oil for the first time because supply is relatively high compared with prior years.
          In relation to Nigeria, it could be hard to find new buyers because the relative supply of oil has been increasing because Libya is back on the oil market and many other countries have dominated the industry. With an increase in supply from foreign markets, Nigeria cannot charge higher premiums in excess of cost on their oil which is now $1.70 a barrel compared to $3.65 just a year earlier. We can illustrate this on a production possibility frontier. If oil production is on the horizontal axis and is compared with the other exports on the vertical axis, then I believe Nigeria needs to shift some production to the other industries (moving up along the PPF). It would be beneficial to produce more of other commodities because the world prices of crude have decrease because of an increase in supply. When looking at the PPF, this would be shown by a shift in the price line that has a flatter slope which represents a lower world price when compared with other goods.
          Seeing that Nigeria is the big loser in this trade because most of their exports are oil and the price has decreased, there must be someone benefiting.  Some countries in Europe have been importing Nigerian oil because the prices dropped which has increased Europe’s gains from trade if exports remain fixed.  Another concept comes into play is the Ricardian Model from chapter 2 in the text. Nigeria produces a lighter-sweet crude oil which can be refined easily. On the other hand, many countries have invested in capital and increased their refining technology so that they can refine heavier, sour grades of crude. These heavier sour grades of crude are much cheaper than the lighter sweet based crude from Nigeria. That being said, this technology increase from other countries, decreases the demand for Nigerian crude and gives them less of a comparative advantage because other countries have less opportunity cost when refining oil because it is relatively cheaper.