Brent crude oil price, the closest to Nigeria’s sweet crude, hit $58.37 per barrel yesterday on the first trading day of 2017. The current price which is the highest since July 2015, and a deal between the Organisation of the Petroleum Exporting Countries (OPEC) and non-OPEC members to cut production, will reduce a global supply glut.January 1 marked the official start of a deal agreed by OPEC and other exporters such as Russia, to reduce output by almost 1.8 million barrels per day (bpd).
For Nigeria, the oil price spike ignites the hope for early exit from the current economic recession of negative gross domestic product growth (GDP), that is, the total value of goods produced and services provided in a country during one year, for three consecutive quarters.
Furthermore, it boosts confidence in the Federal Government’s ability to effectively implement its 2017 budget. President Muhammudu Buhari, mid-December, presented a budget proposal of N7.3 trillion for the 2017 fiscal year. “The Budget is based on a benchmark crude oil price of $42.5 per barrel, and oil production of 2.2 million barrels per day (bpd); and an average exchange rate of N305 to $1,” he said.
Oil is projected to contribute about N1.985 trillion from the expected N4.94 trillion aggregate revenue available to fund the federal budget.Before the latest good news, Nigeria had not record a change in oil production, as the difference between the current record of 1.9bpd according to Petroleum Resources Minister, Ibe Kachikwu, and the 2017 budget benchmark remains wide apart.
The implications are that Nigeria has already lost huge revenues in the first three days of 2017, with direct impact on the feasibility of the projected revenues in the budget.This is outside the fact that OPEC, the union for global oil producers, which accounts for close to 40 per cent of the world’s oil supply puts Nigeria’s output at 1.5 million bpd.
Going by OPEC’s figures, Nigeria is currently lagging behind by 700,000 bpd resulting in an immediate shortfall of $40.7 million daily at $58.17 per barrel or 300,000 bpd, leading to a $17.5 million shortfall daily.
This is why the trend in the international market should be celebrated. Despite being below projected productions, “any price increment automatically represents growth,” argued Victor Ndukauba, Deputy Managing Director, Afrinvest Ltd.
He told The Guardian on the telephone that “the increase would create a sentiment that things are looking up and will boost investors’ confidence and buoy economic activities.”
At $58.37, government has already its budget estimates, but economic analysts called for prudence and fiscal discipline so that the country can derive the maximum from the oil price increases.
“Anything above the budget benchmark should be saved in the Excess Crude Account,” the CEO of the Oildata Energy Group and Xenergi, Emeka Ene, told The Guardian.
Ene, a former President of the Society for Petroleum Engineers (SPE) Nigerian Council, noted that “The reason we’re in recession is because Nigeria did not save for the rainy day.”
The President, International Energy Services Ltd., an indigenous oil service firm, Dr. Diran Fawibe, cautioned that it is too early to rejoice over the price increase.
Fawibe, who registered Nigeria with OPEC during his stay at the Nigerian National Petroleum Corporation, NNPC, noted that the sustainability of the current oil prices depend on certain variables. These are the commitment of OPEC and non-OPEC members to the deal and collaboration with the Niger Delta militants to guarantee peace and sustain production levels in the country.
For a fiscal governance expert, Eze Onyekpere, the lack of a clear path for the resolution of the insurgency in the region will affect the realisation of the projection for oil revenue.
On his part, the Director-General, Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf, feared that the recent increase might lead to increase in the domestic price of petroleum products or bring about the introduction of fuel subsidy in Nigeria.