Oil price rises $15 pb above 2017 proposed benchmark

Credit: Daily Trust

Oil prices soared yesterday by $20/barrel above the 2016 budget benchmark and $15/barrel above the proposal made by federal government for 2017.

President Muhammadu Buhari is expected to submit the 2017 estimates to the joint session of the National Assembly tomorrow.

The 2016 Appropriation is based on crude oil benchmark of $38/barrel and 2.2 million barrels per day production target.

The medium term expenditure framework has pegged the 2017 estimate at $42.5/ barrel and 2.2 million barrels production target.

Brent crude oil, a global crude grade benchmark, soared above $57.83 per barrel yesterday, highest in the last 15 months following the agreement reached by the Non- OPEC members to cut about 558,000 barrels per day from January on Saturday.

The rise came after OPEC and some non members reached their first deal in 15 years to jointly reduce output to tackle oversupply in the global market.

The non OPEC members led by Russia Saturday agreed to reduce output by 558,000 bpd following the Nov. 30 deal by OPEC to cut output by 1.2 million bpd for six months from Jan. 1.

Top exporter Saudi Arabia alone is cutting around 486,000 bpd to curb a two-year supply glut.

Nigeria and Libya were exempted from the production cut, due to the oil and gas facilities damaged by militant attacks in recent months.

Nigeria is currently pumping about 1.8 million barrels of oil per day which is below the 2.2 million barrels target.

Professor Ode Ojowu, former Chief Economic Adviser to President Olusegun Obasanjo, said the rise in crude prices is a welcome development but urged the government not to rely on crude price for its developmental project anymore.

Ojowu, who is also the chairman of the  Daily Trust Board of Economists, told our reporter that if government will work with the  Niger Delta militants to stop the unprecedented attacks on the pipelines, the country will benefit from the new prices.

He urged government to continue with its diversifications programme regardless of the rise in crude price, arguing that doing so will take Nigeria back.

He warned that oil price will never be like before because of the development in the sector such as the improvement in high drilling technologies, many new entrants in oil exploration and the emergence of the alternative fuel around the globe.

‘The government should maintain low expectation on the oil price and concentrate on the diversifications agenda,’ he said.

Professor Badayi M. Sani of Economics Department, Bayero University, Kano, said the increase in price will help the government to boost spending and move away from the recession.

Prof. Sani said Nigeria should not over celebrate the new price because the commodity market is highly volatile and there is possibility of quota cheating by both OPEC and non-OPEC members.

He said most of these commodity producers have their individual problems and can decide to flout the agreements and that will hit back on the price again.

He also called for government to urgently address the Niger Delta issues to enjoy the benefit.

Budget projections adjusted 

The projections set for the 2017 budget in the Medium Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP) have been adjusted, Daily Trust reliably gathered. 

 Senators weeks ago said the benchmark set for the 2017 budget including the exchange rate of N290 per dollar, 2.2m dollar per day and the $42.5 crude oil benchmark contained in the MTEF/FSP was not realistic.

It was gathered that the new projections were contained in a document signed by the Director General of the Budget Office, Mr. Ben Akabueze and submitted to the Senate last week. 

Sources at the Senate told our correspondent that exchange rate that was initially fixed at N290 has been jerked up to N305 to reflect the present situation in the country. 

“The exchange rate is now N305 but the daily production is still 2.2m barrel per day and the crude oil is left at $42.5 per barrel, “he said. 

President Muhammadu Buhari is expected to present the 2017 budget tomorrow.

Source: Daily Trust