THE execution of Nigeria’s N8.91 trillion 2019 budget is being threatened as the price of Bonny Light, the nation’s premium oil grade slides further from $60.86 to $57.21 per barrel, indicating a drop of $3.65.
An investigation by Vanguard showed that the situation is fueled by a combination of factors, including excess supply, dwindling demand, and fears of economic recession, arising from an increasing wave in interest rate cuts around the world.
At the current price, the nation, which had based its 2019 budget on $60.00 and 2.3 million barrels per day, BPD this year, has suffered a setback of $2.79 per barrel.
Besides Bonny Light, the prices of Brent and the Organisation of Petroleum Exporting Countries (OPEC) Basket also dropped from $59.19 and $60.54 to $57.71 and $59.71 per barrel, respectively.
In a report obtained by Vanguard, a market analyst, Mr Nick Cunningham, who has been closely monitoring the situation stated: “Crude oil has plunged by, even more, falling by more than 13 per cent in the first week of August. In fact, oil is down by more than 20 percent since a recent peak in April, which puts it into the bear market territory.
“Oil is suffering from its own set of unique problems, with weak demand lagging behind large increases in supply. A surprise build in crude inventories on Wednesday from the EIA led to steeper fall in oil prices, which were already reeling. “There is also a direct effect of the currency battle on oil demand.
A stronger dollar makes oil more expensive to the rest of the world. That has an immediate pricing impact on consumers, which is why oil tends to move inversely to the dollar. “However, demand is also slowing because of the broader economic problems – the trade war and the deteriorating global economic conditions are magnifying the price declines.
It is no coincidence that crude plunged by five per cent on Wednesday, after the surprise interest rate cuts from multiple central banks. The threat of a currency war has raised fears of a deeper plunge in the global economy, which would obviously be hugely negative for oil demand.” However, in his budget presentation to the National Assembly, President Muhammadu Buhari had stated: “The 2019 Budget Proposal is intended to further place the economy on the path of inclusive, diversified and sustainable growth in order to continue to lift significant numbers of our citizens out of poverty.
“The underlying drivers of the 2019 revenue projections have been adjusted to reflect current realities. On the expenditure side, allocations to ministries, departments, and agencies of government were guided by the three objectives of the ERGP, which are, (i) Restoring and Sustaining Growth; (ii) Investing in our People and (iii) Building a Globally Competitive Economy.
“Notwithstanding the recent softening in international oil prices, the considered view of most reputable analysts is that the downward trend in oil prices in recent months is not necessarily reflective of the outlook for 2019.
However, as a responsible administration, we will continue to monitor the situation and will respond to any changes in the international oil price outlook for 2019. “With regard to oil production, I have directed the NNPC to take all possible measures to achieve the targeted oil production of 2.3 million barrels per day.”