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Falling oil prices threaten budget implementation

By on November 13, 2014

There is a likelihood that the Federal Government will record a 36 per cent drop in budget implementation if oil prices do not surpass the $80 mark, with analysts saying that the nation may need the commodity to sell for $126 per barrel in order to balance the budget.

With Brent at $82 a barrel, only Kuwait, Qatar and the United Arab Emirates will earn enough to balance their budgets, according to the International Monetary Fund.

Nigeria needs oil at $126 to balance its budget, while Venezuela requires crude at $162, according to Deutsche Bank.

With less than three weeks to go before the Organisation of Petroleum Exporting Countries meets in Vienna and the sell-off in oil showing few signs of letting up, speculation is mounting that the group will take action to try to stem the decline.

Brent crude, the benchmark for more than half of the world’s oil, gained 53 cents to close at $83.39 on Friday and was down 28 per cent from a high of $115.06 in June on the London-based ICE Futures Europe Exchange. West Texas Intermediate oil rose by 74 cents to $78.65 on the New York Mercantile Exchange, but was down 27 per cent from its June peak.

OPEC said the world would need less of its oil for most of the next two decades than previously estimated as the United States shale production grows. The cartel lowered every forecast for its crude through 2035 except next year.

A former President, Nigerian Association of Petroleum Explorationists, Mr. Afe Mayowa, told our correspondent that the country was likely to see more woes because oil prices were expected to drop further to $75.

“Oil price will continue to go down. From the just concluded African Oil Week we had in South Africa, we are all expecting it to go down to as low as $75. It is going to pose a lot of challenge to many economies. It is really unfortunate,” he said.

A former Group Managing Director, Nigerian National Petroleum Corporation, Mr. Chamberlain Oyibo, told our correspondent on the telephone that the country would be adversely affected by falling oil prices because the economy was oil-based.

“It is equally double jeopardy if local oil production is also dropping. If the oil price is now below $100, we have to watch it,” he said.

Oyibo stressed the need for energy security in the country, saying the government should use the abundant energy resources to develop the Nigerian economy.

“With this, the value added will be more. This is because we have a huge consumption base, which means a very huge market,” he said.

Bloomberg quoted Giovanni Staunovo, an analyst at UBS AG in Zurich, as predicting that OPEC would reduce output by 500,000 barrels a day at its forthcoming meeting. Such a move would help trigger a rebound in crude to a range of $90 to $100 a barrel, the analyst estimated.

 

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