NIGERIA’s Minister of Finance, Zainab Ahmed on Tuesday announced that the country’s crude oil benchmark which was initially pegged at $60 per barrel would be lowered to $55 per barrel to contain the effects of an unexpected price shock.
In a report, Ahmed stated that indicators were pointing to an oversupply of crude oil in the global market which is a major reason for the review of the nation’s oil price ceiling.
“There are strong indications of an oversupplied oil market next year and lowered price expectations for the country’s benchmark crude,” she said.
Ahmed agreed that a lowered forecast for Nigeria’s benchmark price to $55 per barrel from $60 per barrel, would in part help “to cushion against an unexpected price shock.”
Nigeria and the United States are major producers of sweet grades crude oil which is ideal for refining into petrol, but US oil exports increased from 260,000 barrels per day in June to a monthly record of 3.16 million barrels per day putting Nigeria’s oil exports sales in jeopardy.
In August, The ICIR announced Nigeria has its largest oversupply of crude oil in 2019 with an excess of 25 cargoes of crude oil that were unsold for that month as countries that patronised its crude oil reduced their imports.
This current development bolstered by declining crude oil prices, in the global oil market will affect the federally generated revenue distributed across the three tiers of government as the 2019 approved budget implementation was to be sustained by the $60 per barrel crude oil sales.
Revenue from the Federation Account is shared between the three tiers of government with the Federal Government staking claim to 52.68 per cent, the 36 state governments share 26.72 per cent and 20.60 per cent is allotted to the 774 local governments.
Proceeds from oil constitute about 90 per cent of the country’s total revenue, however, the 2019 budget, signed by President Muhammadu Buhari in May, was based on oil production of 2.3 million barrels per day with an oil benchmark price of $60 per barrel.
Ahmed also hinted that Nigeria currently stands as Africa’s largest oil exporter producing about 2.3 million barrels per day of crude oil and condensates.
However, Nigeria, a signatory to the Organization of the Petroleum Exporting Countries (OPEC), agreement to cut its supply of crude oil production to 1.685 million barrels per day, indicating it has failed to meet OPEC’s target.
OPEC and a Russia led oil-producing nations formed an alliance tagged as OPEC+ which had agreed to cut down inventories and remove 1.2 million barrels per day of crude oil from global markets on January 1, 2019 in a bid to raise oil prices.
Despite this, Russia’s oil output in August exceeded its quota under the OPEC+ agreements.
Prince Abdulaziz bin Salman, a son of the Saudi king, and a long-time member of the country’s delegation to OPEC, in a news report, said the pillars of Saudi Arabia’s policy would not change and a global deal to cut oil production by 1.2 million barrels per day would be maintained.
He added that the so-called OPEC+ alliance, made up of OPEC and non-OPEC countries including Russia, would be in place for the long term.
Amos Abba is a journalist with the International Center for Investigative Reporting, ICIR, who believes that courageous investigative reporting is the key to social justice and accountability in the society.