June 22, 2017

Budget 2017: Panic as oil price drops to $43.90 per barrel

Budget 2017: Panic as oil price drops to $43.90 per barrel

President Muhammadu Buhari presenting the 2017 Budget before a joint session of the National Assembly on Wednesday, December 14, 2016.

By Udeme Akpan
—For the first time, the price of crude oil has dropped from $46 to $43.90 per barrel in the international market, showing $0.60 cents below Nigeria’s $44.50 per reference price for the 2017 budget.

A survey of the global oil market, showed that the there was a general drop in the prices of many range of crude oil because of excess supply yesterday.

President Muhammadu Buhari presenting the 2017 Budget before a joint session of the National Assembly on Wednesday, December 14, 2016.

For instance, the price of the Organisation of Petroleum Exporting Countries, OPEC, basket of crude, including Nigeria’s Bonny Light, dropped from over $46 to $43.90 per barrel.

According to OPEC, “the price of OPEC basket of 14 crude stood at $43.90 a barrel on Tuesday, compared with $44.46 the previous day, according to OPEC secretariat calculations.

The price of Brent, usually used to benchmark other prices and WTI, also dropped from over $46 to $45.56 and $43.14 per barrel respectively.

Impact on 2017 budget

Mr. Johnson Chukwu, Managing Director of Cowry Asset Management Limited, said it was too early to conclude that the low oil price would affect the budget negatively.

He said the development would only affect the budget, if oil price remained low on a sustainable basis.

Budget benchmark

President Muhammadu Buhari had, while presenting the nation’as budget to the National Assembly, stated: “The 2017 Budget is based on a benchmark crude oil price of US$42.5 per barrel; an oil production estimate of 2.2 million barrels per day; and an average exchange rate of N305 to the US dollar.

“Based on these assumptions, aggregate revenue available to fund the federal budget is N4.94 trillion. This is 28 per cent higher than 2016 full year projections. Oil is projected to contribute N1.985 trillion of this amount.”

OPEC intervention

OPEC was expected to adopt measures, targeted at achieving stability in the market last month.

The organisation indicated that it had considered the Secretary General’s report, the report and recommendations made by the Joint Ministerial Monitoring Committee (JMMC), supported by the Joint Technical Committee (JTC), which was set-up to monitor conformity to the voluntary production adjustments made by 13 OPEC and 11 non-OPEC nations.

“The Conference analyzed oil market developments since it last met in Vienna at the end of November and reviewed the oil market outlook for the remainder of 2017. In line with the decision taken at its 171st Meeting, the Conference decided to extend its production adjustments for a further period of nine months, with effect from 1 July 2017.

“Member Countries, in agreeing to this decision, confirmed their commitment to a stable and balanced oil market, with prices at levels that are suitable for both producers and consumers. The Conference thanked all OPEC Member Countries for their commitment, as reflected in the unprecedented conformity levels to the decision taken at the 171st OPEC Ministerial Conference. The Conference reaffirmed their commitment, individually and collectively, to the decision to extend their production adjustments for a further nine-month period.

“The Conference asked the JMMC and the JTC to continue their important work for the period of the extension of the Declaration of Cooperation.  It expressed its deep appreciation to the commitment and valued contribution of the JMMC and the JTC that have provided the transparency required implementing the decisions taken last year in a timely and equitable manner.  In this regard, specific thanks were given to HE Issam A. Almarzooq, as Chair of the JMMC, and Mr Haitham Al-Ghais, Market Research Manager at Kuwait Petroleum Corporation, who has served as Chair of the JTC,” it had added.

“Non-oil revenues, largely comprising Companies Income Tax, Value Added Tax, Customs and Excise duties, and Federation Account levies are estimated to contribute N1.373 trillion. We have set a more realistic projection of N807.57 billion for Independent Revenues, while we have projected receipts of N565.1 billion from various Recoveries. Other revenue sources, including mining, amount to N210.9billion. With regard to expenditure, we have proposed a budget size of N7.298trillion which is a nominal 20.4% increase over 2016 estimates. 30.7% of this expenditure will be capital in line with our determination to reflate and pull the economy out of recession as quickly as possible,” he had added.