Business Hilights
Tracking Nigeria's Headline Business News Online

Fears as imminent high crude oil stock may spark off drop in price

…As Senate passes 2020 budget

The chances of successful implementation of emerging 2020 federal budget passed into law by the Senate on Thursday, may hang if indications from the new outlook by international observers in oil stocks and prices are anything to go by.

Otherwise, there are palpable fears that highly expected substantial build up of global crude oil stocks and a corresponding drop in oil prices is imminent if additional oil production cuts by OPEC in 2020, is not followed by OPEC+.

Before now, analyst had called on lawmakers to reduce the current $64 benchmark of Nigeria crude to avoid being cut in the web of volatile oil price fluctuations which is highly expected from next year due to dropping demand and rising production outputs.

Recall that in the proposed 2020 budget, the Federal Government estimated oil sales to stand at 2.18 million bpd at a price of $57 per barrel, while the exchange rate is expected to remain N305 per dollar.

However, the passed budget saw cut in the official benchmark of crude price from $57 to $55 even as the total figure is raised from N10.3tn to N10.6tn.

Analysts say empirical evidence has demonstrated that a 1 million bpd surplus of oil can be expected to cause an oil price decline of around 5% per month, implying a potential drop of 30% over six months.

Analysts at the Rystad Energy Group speculate that the global oil market will be fundamentally oversupplied to the tune of 0.8 million barrels per day (bpd) in the first half of 2020.

Head of oil market research at Rystad Energy, Bjørnar Tonhaugen, has argued that “The outlook will be bleak if OPEC+ fails to agree on additional cuts,” stressing that “|We have a clear message to the OPEC+ countries: A ‘roll-over’ of the current production agreement is not enough to preserve a balanced market and ensure a stable oil price environment in 2020.”

He added that “If OPEC and Russia don’t extend and deepen their cuts, we could see Brent Blend dip to the $40s next year for a shorter period.”

However, confident Minister of State for Petroleum Resources, Timipre Sylva has assured OPEC of compliance to cuts even though there are concerns for the implementation of the 2020 budget if oil prices fall below proposed benchmark.

Meanwhile, the Senate Wednesday received the final report for the 2020 budget.

The chairman of the Senate Committee on Appropriations, Jubril Barau, presented the final report for consideration and passage.

President of the Red Chambers, Senator Ahmad Lawan, while receiving the report said copies of the Appropriation Bill would be duplicated and distributed to members on Thursday (today), noting that lawmakers would review the recommendations of the report before passing the budget.

Recall that President Muhammadu Buhari had on October 8 presented the bill to a joint session of the National Assembly. He proposed N10.33 trillion for national spending for the year 2020.

In his speech while presenting the budget, Buhari said the 2020 budget is based on the proposed new VAT rate. The increased revenues will be used to fund education, health, and infrastructure.

Buhari said the goal of presenting the 2020 Appropriation Act early to the lawmakers is so it can come into effect on January 1, 2020. He also stated that the main emphasis of the budget is on the completion of many ongoing infrastructure projects, instead of starting new ones.

The Ministry of Works and Housing got N262 billion, transportation ministry got a budget of N123 billion, Agriculture ministry received N83 billion.

UBEC got N112 billion, Defence ministry N100 billion, Water Resources was allotted N82 billion, Education sector got N48 billion, health has N46 billion.

North East Dec Commission got N38 billion, SIPs was given a budget of N30 billion, FCT got N28 billion and the Niger Delta ministry got N24 billion.