— The fall in oil prices and excess crude oil revenue pose a fresh threat to the implementation of the Federal Government’s N7.28 trillion 2017 budget which was based on $44.5 per barrel reference price.
Nigeria’s excess crude oil revenue has dropped by five per cent as oil prices fell to $49.26 per barrel yesterday, posing fresh threat to implementation of the yet unsigned 2017 budget and the exchange rate of the naira.
Specifically, the nation generated about $114 million from the export of about two million barrels per day in May, 2017 when prices stood at $57 per barrel.
But the revenue dropped to $108 million yesterday when oil prices crashed from over $50 per barrel to $49.29 in the global market.
This development translates to reduction in accretion to the nation’s external reserves, hence reduction in dollar supplies, which undermines the stability of the Naira exchange rate. Though the Naira appreciated to N375 per dollar in May, external reserves however fell by $535 million during the month to $30.32 billion.
Managing Director/CEO of Cowry Assets Management Limited, Mr. Johnson Chukwu indicated in a telephone interview that the market situation was fuelled by the decision of the United States not to be part of the Paris Club on climate change.
He said that this gives the impression that the United States would flood the market with commercial shale oil, thus worsening the present state of the market.
In practice, Chukwu stated that the United States will not be able do much damage to the market, as there is a limit to which shale producers can go in terms of increasing supply.
Chairman of International Energy Services Limited, Dr. Diran Fawibe, a close watcher of the volatile market, said in a telephone interview that the development constitutes fresh threat to foreign exchange generation and budget implementation.
According to him, the nation that currently produces about 2.2 million bpd following the coming back on stream of Shell Petroleum Development Company’s Forcados with the capacity to produce about 200,000 bpd may experience a setback should prices slide further.
He indicated that the initial leap in prices to $54 per barrel before the recent meeting of the Organisation of Petroleum Exporting Countries, OPEC was based on the immediate market response to expected possible decision of the organisation.
“What we may expect in the medium term is price hovering around $50 per barrel, depending on market perception of oil supplies to world oil market.”
“If the prices hover around $50-54 dollars per barrel, there is no reason why Nigeria’s 2017 budget should suffer. However, much will depend on the discipline in maintaining fiscal responsibility and due process with regard to the budget implementation” .