Economic outlook

February 15, 2019

Any hope for Nigeria’s 2019 budget as oil price hits $64.56 per barrel

Barkindo, OPEC

Secretary General of OPEC Mohammed Barkindo

By Udeme Akpan

FOR the first time in 2019, the oil price yesterday rose from $62.00 to $64.56 per barrel in the international market, indicating $4.56 in excess of Nigeria’s $60.00 budget benchmark.

Secretary General of OPEC Mohammed Barkindo

Specifically, the prices of Brent, West Texas Intermediate, WTI and OPEC basket stood at $64.56, $53.79 and $62.94 per barrel respectively.

Market watchers attributed the development to the positive report of the organisation of Petroleum Exporting Countries, OPEC which has intensified efforts to eliminate excess supply from the market.

A source said: “OPEC output falls by nearly 800,000 bpd in January. OPEC production declined by 797,000 bpd in January from a month earlier, averaging just 30.81 mb/d. Saudi Arabia, the UAE and Kuwait chipped in most of the reductions.

“Still, Russia only lowered output by 90,000 bpd, far short of the 230,000 bpd promised as part of the December deal. Saudi Arabia said it would continue to cut output, with plans to lower production to as low as 9.8 mb/d in March, or roughly half a million barrels per day lower than it had promised. Oil prices jumped on the news.”

In its latest oil market report, OPEC gave impression that the price may leap further because of increased demand when it stated: “Japan’s growth forecast remained at 1.0per cent for 2019 and stands at 0.8per cent in 2018. In the non-OECD countries, China’s growth forecast of 6.1per cent in 2019 remains unchanged from the previous month, following slightly better than expected growth in 2018 of 6.6per cent.

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“India’s growth forecast remained at 7.2per cent for 2019, after 7.5per cent in 2018. Growth in Brazil remains unchanged at a forecast 1.8per cent for 2019, following 1.1per cent in 2018. Russia’s 2019 GDP growth forecast was revised down slightly to 1.6per cent, the same growth level as seen in 2018. While some positive signals still support global economic growth at around the current forecast level, underlying risks continue, considering ongoing trade tensions, monetary policies and ongoing challenges in several emerging and developing economies.”

It stated: “Total world oil demand growth in 2018 is estimated at 1.47 mb/d, for an average of 98.78 mb/d for the year. For 2019, oil demand growth is forecast at around 1.24 mb/d, slightly lower than the previous month’s assessment by 0.05 mb/d to reach an average of 100.00 mb/d. The downward revision is mainly an outcome of lower economic expectations in 2019 for the OECD Americas and Europe, as well as Latin America and the Middle East.”

“Non-OPEC oil supply growth in 2018 was revised up by 0.11 mb/d from the previous month’s report, mainly due to adjustments for US, Canada, Malaysia, China and UK supply, and is now estimated at 2.72 mb/d, with total supply averaging 62.17 mb/d for the year. Key growth drivers in 2018 were the US with 2.24 mb/d, along with Canada, Russia, Kazakhstan, Qatar, Ghana and the UK, while Mexico, Norway and Vietnam showed the largest declines.

“The non-OPEC oil supply growth forecast for 2019 was also revised up by 0.08 mb/d to 2.18 mb/d, mainly due to a revised production forecast for the US Gulf of Mexico. Total non-OPEC supply for the year is projected to average 64.34 mb/d. The US, Brazil, Russia, the UK, Australia, Kazakhstan and Ghana are expected to be the main drivers, while Mexico, Canada, Norway, Indonesia and Vietnam are projected to see the largest declines.”

I check the oil price everyday this year; it has not fallen below $60 per barrel. I think for us the challenge more should be for us to be meeting our production. And what do I mean? Possible OPEC quota more than anything else. That is because with Egina coming on stream, that is another 200,000 barrels potential, taking us to about 2.3 million barrels.\

ALSO READ: Oil output drops as price stagnates

Low oil output

Meanwhile, there was panic in the oil and gas industry on Tuesday, this week when it became obvious that Nigeria’s output has dropped from 2,081,936 barrels per day, bpd recorded in December 2018 to 1,999, 292 bpd in January 2019.

The Ministry of Petroleum Resources report that made this public did not provide details and explanation.

But investigation by Vanguard showed that the drop in output was mainly as a result of vandalism and oil theft in the Niger Delta.

It showed that some oil companies, including Shell Petroleum Development Company have continued to record oil theft and vandalism despite the relatively calm in the region.

In its latest ‘briefing notes’, Shell that recorded six oil spills because of mainly attacks on its facilities stated: “Security in parts of the Niger Delta remains a major concern with persisting incidents of criminality, kidnapping and vandalism as well as onshore and offshore piracy. Although there has been no damage to key oil and gas infrastructure caused by militant activity since November 2016, the security situation remains volatile in this region of the country.

“Operations at the SPDC JV’s Forcados Oil Terminal (FOT) was disrupted until late May 2017 while repairs to the export line were completed after three sabotage incidents in 2016. This resulted in loss of revenue, particularly for domestic producers who rely on the FOT for export.

“Facilities operated by both indigenous and international oil and gas companies continue to be vandalised by attacks and other illegal activities such as crude oil theft. This led to lower oil and gas production in 2016 particularly for indigenous producers and incidents of environmental contamination. The consequences also included a loss of revenue for the Federal Government of Nigeria and disruptions to gas supply to power electricity for industry, businesses and public-sector services.

“The safety of staff and contractors in Nigeria remains the top priority. Shell Companies in Nigeria aim to mitigate security risks that may impact people, the environment and assets – thus operations are carried out only where it is safe to do so. We continue to deploy in-country expertise to mitigate security risks around our operations. We also continue to engage with the government and non-governmental organisations (NGOs), as well as local communities, to help promote human rights and a peaceful and safe operating environment. Our dialogue is underpinned by ongoing community development activities.”


In an interview with Vanguard, Director General, Lagos Chamber of Commerce and Industry, Mr. Muda Yusuf stated: “The declining global oil price will likely distort FG’s economic projections for 2019 as well as impact adversely on its MTEF if the trend is not reversed.

“There are fears that the sharp fall in oil prices if sustained could lead to a new pressure on the naira exchange rate.  As capital flow reversals intensify, oil price weakens, and foreign reserves come under pressure, there are worries about the sustainability of current frequency of interventions by the Central Bank of Nigeria [CBN] to stabilise the market.  Some measure of rate adjustment may become inevitable.

“The improvement in liquidity and relative stability in forex market witnessed by businesses in 2018 may be threatened if oil price declines continue. This will have profound impact on the prices of imported goods and services leading to a rise in the level of inflation.  The fiscal operations of government would be adversely affected.  This may further escalate the deficit in the budget.”

The Chairman, Petroleum Technology Association of Nigeria, PETAN, Mazi Okoroafor, also called for the immediate assent of the Petroleum Industry Governance Bill, PIGB, but also addressing of many issues, especially, inadequate and poor infrastructure, policy issues, tax issues, regulatory environment, institutional issues and security situation in Nigeria.

Why FG adopted $60

Meanwhile, Special Adviser on Economic Matters to President Muhamadu Buhari, Dr. Oluyemi Dipeolu said: “I know the oil price fell in December 2018 to below $60, but the 2019 budget hadn’t started yet? But in that same year, it was at $80 per barrel,  so, we are looking at the average.

“Secondly, oil prices are inherently volatile. A lot of people, and they may even be wrong, are projecting $65-$70 per barrel. At the time the budget was drawn up, who would have taught oil price would drop to $60 per barrel? Nobody. Don’t forget that the budget was drawn up when crude oil price was about $80 per barrel and it was that leeway that we gave ourselves to still be above $60 per barrel.

“I check the oil price everyday this year; it has not fallen below $60 per barrel. I think for us the challenge more should be for us to be meeting our production. And what do I mean? Possible OPEC quota more than anything else. That is because with Egina coming on stream, that is another 200,000 barrels potential, taking us to about 2.3 million barrels. So, I am not worried about the crude oil benchmark in the budget, because it doesn’t look over ambitious. We were already at 2.1 barrels last year, including condensate. And if you remove condensate, we are doing about 1.76 million barrels per day, and that is part of our OPEC quota.”

President Buhari

However, in his budget speech to the National Assembly, President Muhammadu Buhari had stated: “Notwithstanding the recent softening in international oil prices, the considered view of most reputable analysts is that the downward trend in oil prices in recent months is not necessarily reflective of the outlook for 2019.

“However, as a responsible Administration, we will continue to monitor the situation and will respond to any changes in the international oil price outlook for 2019.   With regard to oil production, I have directed the NPPC to take all possible measures to achieve the targeted oil production of 2.3 million barrels per day.”