Worry for Nigeria’s budget as oil prices fall to seven-month low

Anxiety may have heightened on how to finance Nigeria’s 2017 budget as crude oil price volatility resumes with seven-month low.

Oil prices fell to seven-month low yesterday, after news of increases in supply by several key producers weakened the Organisation of the Petroleum Exporting Countries (OPEC) attempts to support the market through output freeze.

Benchmark Brent fell from $47.06 it sold on Monday to settle at $46.91 a barrel as at the early hours of Tuesday.

U.S. crude oil also decreased from $44.35 a barrel to $44.20, its lowest close since November 14, 2016.

In the 2017 budget, Nigeria’s executive arm set the crude oil benchmark at 2.2 million barrels per day at a price of $42.5 per barrel, before the senate pushed the benchmark to $44.5 a barrel with hopes that the black gold would stay around $50 a barrel.

But current realities at the global crude oil market however show that oil prices may fall below the current price as OPEC struggles with the United States shale oil and increase output from Nigeria and Libya.

Specifically, the nation generated about $114 million from the export of about two million barrels per day in May 2017, when prices stood at $57 per barrel.

With the current crude oil price put at $47.06 per barrel, Nigeria’s oil revenue has however dropped to $103.5 million, resulting to a loss of $11.5 million.

Experts believe that this drop in crude oil prices occasioned by over supply is not good for the Nigeria economy whose 2017 budget depends on revenue from hydrocarbon execute.

The Director-General, Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf, called for a review of the entire budgetary process and to set timelines for every stage of the process.

Deputy-Director at Emerald Energy Institute for Energy & Petroleum Economics, Policy & Strategic Studies, University of Port Harcourt, Prof. Chijioke Nwaozuzu, stressed the need for Nigeria to secure significant new market share in the USA and India as a new source of revenue for the Nigerian treasury.

Head, Energy Research at Ecobank, Dolapo Oni said the current lower price trend is going to have a major effect on Nigeria if the trend continues, adding that the trend is likely to continue until the market adjusts the volume of oil supply available.

The decline in crude comes even as OPEC and other major oil producers have agreed to extend a production-limit pact into the first quarter of 2018, in order to stem the flow of oil, which has weighed mightily on crude futures.

U.S. shale oil drillers, who aren’t a part of the output agreement and increase in output from Nigeria and Libya have been cited as the main culprit disrupting OPEC’s efforts to stabilize oil prices.

OPEC supplies jumped in May as output recovered in Libya and Nigeria, both exempted from the production reduction agreement.

Libyan oil production this week is up by 200,000 to 300,000 bpd from early May while Nigeria is also pushing for an additional output of 200,000 bpd this month. The market is concerned that this will add to oversupply.

Already, exports of Nigeria’s benchmark Bonny Light crude oil are set to reach 226,000 bpd in August, up from 164,000 bpd in July, loading programmes show.

Giving reasons for the glut in the market, the U.S Energy Information Administration (EIA), said in a media statement yesterday, product supplied to the U.S. market as well as inventories and exports are also at relatively high levels.

International Energy Agency (IEA) believes that production from non-OPEC member will continue to affect prices.

IEA predicts that the output of non-OPEC members will outpace demand in 2018.