…As Bonny Light price drops to $55.35 per barrel

By Udeme Akpan

THE price of Bonny Light, Nigeria’s premium oil grade has dropped from $58.38 to $55.35, indicating a decrease of $3.03 per barrel in the international market.

This constitutes a threat to the nation’s 2020 Budget, which was benchmarked at $57 per barrel and 2.3 million barrels per day oil output

In a telephone interview with Vanguard, a Port Harcourt-based Energy analyst, said: “The current oil is dropping because of a combination of factors. The United States and Russia are producing and pumping commercial oil to the market. The demand is not increasing as much as expected because of slow economic growth in many economies, especially China that is threatened by the outbreak of coronavirus.”

READ ALSO: Price of Bonny Light hits $66.04pb

The price of the oil grade was previously expected to rise on the United States and Iran crisis, but it dropped mainly because the conflict did not culminate in the destruction of oil and gas facilities, which could have affected output and supply.

However, the Organisation of Petroleum Exporting Countries (OPEC), remains optimistic that increased demand and its reduction of excess supply would bring about stability in 2020.

In its January 2020 market report obtained by Vanguard, OPEC stated: “For 2020, oil demand growth is revised up by 0.14 mb/d from the previous month’s assessment and is forecast at 1.22 mb/d, mainly reflecting an improved economic outlook for 2020. As a result, total world oil demand is projected to rise from 99.77 mb/d in 2019 to 100.98 mb/d in 2020. Oil demand growth in the OECD region is forecast to increase by 0.09 mb/d supported by OECD.”

Nevertheless, the Citigroup has slashed its oil price forecasts for three of the quarters this year, stressing that the price of Brent could drop to as low as $47 a barrel because of the impact of the coronavirus on oil demand.

In his budget 2020 address to the National Assembly, President Muhammadu Buhari had, stated: “Distinguished and honourable members of the National Assembly, the 2020-2022 Medium Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP), set out the parameters for the 2020 Budget. We have adopted a conservative oil price benchmark of US$57 per barrel, daily oil production estimate of 2.18 mbpd and an exchange rate of N305 per US dollar for 2020.

“We expect enhanced real GDP growth of 2.93 per cent in 2020, driven largely by non-oil output, as economic diversification accelerates, and the enabling business environment improves. However, inflation is expected to remain slightly above single digits in 2020.

“Accompanying the 2020 Budget proposal is a Finance Bill for your kind consideration and passage into law. This Finance Bill has five strategic objectives, in terms of achieving incremental, but necessary, changes to our fiscal laws.”

In its response, the Lagos Chambers of Commerce and industry (LCCI), had stated: “The key assumptions underpinning the budget are realistic except for the exchange rate assumption of N305 to the dollar.  This is one assumption that is difficult to justify, especially at a time when declining revenue has become a major issue for both the government and the citizens.  The 2020 Budget numbers underscore the need to be more innovative in boosting revenue, reducing leakages and ensuring that revenue generating agencies of government remit what is due to government.  We need to do things differently if we must get a different result.

“In view of the critical revenue situation reflected in the budget numbers and previous revenue performance, no effort should be spared to attract private capital for investment in key infrastructures that may considered bankable.  This would reduce the financing gaps that currently exists.

“The private sector looks forward to the details of the finance bill proposed by the government in order to ensure appropriate engagement with the legislature before it passage into law.  We believe that there should be a window of opportunity for stakeholders to make their inputs into the into the budget consideration process.

“We note that the total budget size is N10.3 trillion.  The recurrent component is N4.88 trillion, debt service is N2.45 trillion.  Together, these two budget items amount to 7.33 trillion, which is 90 per cent total revenue estimates.  In addition, from the record of accomplishment of revenue performance, the percentage may be much higher when related to the actual numbers.  All of these indicate that the hope for an impactful investment in infrastructure is dim and would remain so for some time to come.’’

Vanguard