Oil Price Plunge Pushing For Nigeria’s Budget Review
TITUS ALLI, Abuja
With the plunge of oil prices occasioned by the price war ignited by Saudi Arabia in a market already down from the impact of the deadly coronavirus, the Federal government may be compelled to review its expenditure in the current year owing to the dislocation caused by the volatility in the international oil market.
Oil lost more than a quarter of their value Monday, the biggest one-day decline in 29 years, spiking fear it could affect the implementation of Nigeria’s 2020 budget which already, had been threatened by the impact of the deadly coronavirus.
Saudi Arabia slashed its official selling prices and made plans to ramp up crude output next month after Russia balked at making a further steep output cut proposed by the Organization of Petroleum Exporting Countries to stabilize oil markets.
This action forced Brent crude futures to go down $11.81, or 26%, at $33.46 a barrel by 0650 GMT, after earlier dropping to $31.02, their lowest since Feb. 12, 2016. Brent futures are on track for their biggest daily decline since Jan. 17, 1991, when prices dropped at the start of the first Gulf War, as the market had been expecting the war for months.
U.S. West Texas Intermediate (WTI) also crude fell by $11.48, or 28%, to $29.80 a barrel, after touching $27.34, also the lowest since Feb. 12, 2016. The U.S. benchmark was potentially heading for its biggest decline on record, surpassing a 33% fall in January 1991.
The latest plunge will badly affect Nigeria which lamented last week plunge on the impact of the deadly Coronavirus. The declining oil price dominated discussion at its last week’s cabinet meeting, prompting an indication of a review of the 2020 budget from the Minister of Finance, Budget and National Planning, Zainab Ahmed .
The 2020 budget was predicated on crude oil benchmark of $57 per barrel and daily production capacity of 2.1m barrels and the current price decline of $31.02 and $33.46 a barrel is causing dislocation.
“We are concerned the current drop in oil price because it’s now below our budget and in view of the volatility in the oil market, the government will continue to rejig strategies for implementation of the budget’, says Zainab Ahmed .
Nigeria is only cushioning the effect of the oil price plunge with the stable production capacity of 2 million barrels per day.
“I am glad to inform you that our oil production as of today is 2 million barrels per day and at times slightly higher. That in its self will be a cushioning effect for us” , adding that “We just had an impact on revenue.
“We are concerned because it does have an impact on revenue. The current crude oil price is below the budget benchmark.
“So what we are doing is studying the situation and when the budget was passed, we committed to doing a midterm review.
“We will do the midterm review and if the revenues are so significantly affected we will have to do some revisions by way of budget adjustment.
“We are not taking any measures now until we have a reasonable period within which we make a review and then we may need to do an adjustment to the budget through working together with the National Assembly’, she said last wednesday.
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