February 12, 2019

Why we put oil price benchmark at $60 — SA Economy

Budget 2024 under threat as oil price drops to $76.53 per barrel

Oil money

By Emeka Anaeto


Amidst fears that oil price benchmark for 2019 budget may fail the test of prudence following stalemate in commodity price rally since this year, the Special Adviser to the President on Economic Matters, Dr. Adeyemi Dipeolu, has said that the federal government relied on forecast that expects oil price to be about $65 per barrel.

At average of $62 per barrel since this year, the actual oil price, though trading within the 2019 budget benchmark of $60 per barrel, provides barely 3% comfort gap contrary to the usual 10 – 15% for national budget estimates.

Oil money

However, Dipeolu hinted that the budget may eventually be subjected to supplementary budgetary measures in the event a serious shortfall is recorded.

He also alluded to the stranglehold of over-dependence on oil revenue, stating that the major plank of the present administration’s policy was revenue diversification alongside other key strands of the economic reform anchored on the Economic Recovery and Growth Plan, ERGP.

He explained how the government arrived at the $60 benchmark saying, “You know the oil price fell in December to below $60 per barrel, but the 2019 budget has not started and you know also that last year it was at $80 when we were preparing the budget. First we are looking at the average, secondly, oil price is inherently volatile, those figures are projection even a lot of people are projecting $65 per barrel. The point I am trying to make is that you have to make a calculated estimate, at the time the budget was turned up, who would have thought it would get to $60? Nobody.

“The budget wasn’t drawn up when it was presented, it was drawn up when the price was $80 per barrel and the price currently is still above $60 per barrel.

“I think for us the problem is meeting our production challenges and what do I mean, possible OPEC quota, and with Egina (new large scale production platform) coming on stream, that is another 200,000bpd potential taking us to our normal 2.3mbpd.

“I am not too worried again about that, it doesn’t look too over ambitious if we look in term of what it added, we are already doing 2.1mbpd. If you remove condensate we are doing 1.76mbpd and that is around our OPEC quota, but then we do condensate.

Ultimately, a budget is an estimate and that is why you have a supplementary budget.

“I think the parameters we used are the best figures we had during the time of the budget and as conservatively as possible. The satisfaction for me is the day we are able to say oil revenue is only accounted for lower percentage of Nigeria’s revenue”.