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ZAINAB Ahmed, Minister of Finance and National Planning revealed this after the Federal Executive Council meeting in Abuja stating that 2020 budget was to be financed by the crude oil benchmark of $57 per barrel but with the global oil price at $53 per barrel the prospects of sustaining the budget is grim.
“We are concerned because it COVID-19 does have an impact on revenue and at the current crude oil price of $53 per barrel is below the budget benchmark. What we are doing is that we are studying the situation and when the budget was passed we committed to do a midterm review,” she said.
She noted that with crude oil production beyond the two million barrels per day projection, there will be a bit of cushion for the shock of the COVID-19 effect.
“I will want to inform you that crude oil production is now at 2 million barrels per day and on some days, it moves up to 2.1 million barrels per day. That in itself will be a cushion, we will have to do some revisions in the budget by way of budget adjustment,” she said.
However, recent developments show that the review of the nation’s oil price ceiling cannot solve the problem of oversupply of crude oil in the Nigerian oil market since the coronavirus outbreak major buyers of Nigerian crude oil are buying in smaller quantities which puts the economy in a risky place.
Nigeria is a major producer of sweet grades crude oil which is ideal for refining into petrol, but in recent months the demand for Nigerian crude from China and several European countries has been low due to weak margins according to a Bloomberg report.
The report highlighted that 70 per cent of April crude oil cargoes from Angola and Nigeria were yet to be sold, which is a sharp decline from the normal pace of sales.
This means that the unsold crude oil cargoes will make up Nigeria’s crude oil oversupply competing against the cargoes due for export in May which are yet to be purchased.
It also indicates that crude oil supplies from Nigeria exported in April likely wouldn’t reach China until May or early June since it takes about 25 days for a ship travelling at 20 nautical miles from Lagos to Shanghai, China which also depends on the Chinese demand for crude oil supply.
China is the biggest buyer of crude oil from Africa with key producing nations which include Angola and Nigeria.
Records show that Nigeria’s crude oil exports dropped in February to 1.15 million barrels per day, which is the lowest monthly rate since June 2018 but it is anticipated that the economic effects of coronavirus will be felt as most February cargoes had already been traded before the health crisis intensified.
Nigeria’s April export crude oil program is unsold, while about half of Angola’s planned shipments for this month have yet to find buyers. The report estimates that 55 Nigerian cargoes and 18 Angolan cargoes have yet to find buyers.
The sluggish sales for April are interlinking with unsold crude oil supplies for March which analysts suggest that 17 per cent of March volumes for Nigeria and Angola haven’t yet been purchased, along with some shipments from smaller producing countries namely the Republic of Congo, Gabon and Chad.
Proceeds from oil constitute about 90 per cent of the country’s total revenue, however, the 2020 budget, signed by President Muhammadu Buhari in May, was based on oil production of 1.8 million barrels per day with an oil benchmark price of $57 per barrel.
With the dwindling sale of crude oil from Nigeria, the economy is likely to experience tougher times if the surplus crude oil produced by the country is not sold which will put its revenue under undue pressure.