Oil Price Trades 54% above Nigeria’s Budget Benchmark
Before it dropped early on Monday, global price of oil traded higher at $43.2 per barrel at the weekend, translating to more than 54% above 2020 budget benchmark.
Though prices have been unstable at the global oil market due to fear of second wave of coronavirus pandemic, and higher inventories in the United States.
The pressure was further increase on the potential return of Libya into the market, as analysts have started projecting possible increase in Supply.
Sustained increase in oil prices is good for Nigerian economy, analysts said. This has potential to reduce burden of deficits budget during the fiscal year.
Due to oil price shock, Federal Government has ramped up borrowing with various debt instrument from domestic market to bilateral and multilateral debts.
In its macroeconomic note, NOVA Merchant Bank Limited said the Organisation of the Petroleum Exporting Countries (OPEC) monthly oil market report for September showed production by 10 the cartel’s members increased by 0.754 million barrels per day (mbpd) in August to 21.7mbpd compared to 20.9mbpd in July.
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Compared to the Phase 2 production cap of 21.8mbpd, the group stated that it achieved compliance rate of 103%.
However, analysts said adjusting the production in August for expected compensatory cuts by members who overproduced during Phase 1, the group’s production should have totalled 20.16mbps in August.
For the OPEC+ allies, Russia (the key partner), the bloc achieved compliance rate of 96% in August, with production rising 5.5% month on month to 9.08mbpd compared to its planned production cap of 8.99mbpd.
In all, NOVA explained that while OPEC+ production of 34.298mbpd (with compliance rate of 102%) fell below August planned cut of 34.42mbpd under the Phase 2 deal, it is still above the 32.11mbpd level expected due to compensatory cuts.
The Energy Information Agency’s (EIA) weekly US Petroleum Report released last week estimates crude oil in commercial storage decreased by 4.4 million barrels (compared to increase of 2.0 million barrels in the prior week) to 496 million barrels (which is about 14% above the five-year average).
At the OPEC meeting last week, the JMMC reiterated the critical importance of adhering to full conformity and compensating overproduced volumes as soon as possible.
NOVA detailed that that crude oil prices traded higher last week by 8.34% to $43.2/barrel.
The price at the end of the week reduced the year to date decline to 36.3% and is 54.1% above the Federal Government of Nigeria 2020 revised budget benchmark of $28/barrel.
Oil Price Trades 54% above Nigeria’s Budget Benchmark
