IN a recent chat with select media practitioners, Minister of Budget and National Planning, Senator Udo Udoma, said the Federal Government has retained the 2019 budget oil price benchmark at $60 per barrel because it believes oil price would rally to near $70 per barrel this year.
Udoma explained that the government had extensive consultations with local and international experts in arriving at the benchmark. True to the wisdom of the experts, shortly after the budget was transmitted to the National Assembly, the price began to rally and by the third week in January 2019 it had significantly gone above $60 with the year’s peak price projected at $62.8, giving great hope to the 2019 budget.
Traditionally, the government sets the oil price benchmark at about 15 per cent below the ruling market price at the point of budget preparation. It is also important to note that because of our oil-dependency, any significant shift in the oil price benchmark would mess up the budget.
Consequently, we are compelled to raise some concerns over recent developments in the international oil market that should be pointers to looming threats to the country’s fiscal plan 2019, even if all things go well on the political front.
In the past few trading days, oil price has changed direction four times showing clear instability. Secondly, the price remained subdued below $62 after the initial spike to $62.8 in the first week of the year.
We believe these two scenarios raise a red flag against the 2019 budget benchmark. It would require special and fundamental developments in the international oil market architecture to have a price rally to $70, a comfortable range for the budget.
Uncertainty about the U.S.-China trade conflict, rising rig count and concerns about global economic growth are much bigger threats. Related to this is the Russian double-dealing. On the one hand, it supports OPEC’s output cut but on the other it is quickly replacing Venezuela in ramping up supplies to China, thereby making the Venezuela shortfall of no effect.
Moreover,feelers from the US Energy Information Administration, EIA, oil outlook for 2019, indicate the U.S. will turn from a net energy importer to exporter starting 2019. This has been the abiding strategy of President Donald Trump in keeping energy cost low for American industries amidst the surging natural gas and oil production in US. China is also stepping up oil exploration efforts.
It is based on these that we call for urgent withdrawal and downward review of the budgetary figures with a more realistic revenue projection. We must also have free, fair and acceptable elections to ensure smooth and peaceful governance. Anything to the contrary could be disastrous to the budget and the economy.