By Adewale Sanyaolu
Funding the 2018 budget through domestic and external borrowings may be jettisoned if the current oil prices of $70 per barrel are sustained.
On Monday, the price of brent crude rose to $70 a barrel, supported by ongoing output cuts led by OPEC and Russia, as the oil cartel ignores rise in US and Canadian drilling that points to higher future output in North America.
Brent sweet crude futures, the international benchmark for oil prices, were at $70 per barrel up by 13 cents from their last level, while the US West Texas Intermediate (WTI) crude futures were at $64.53 dollars a barrel, an increase of 23 cents.
Both benchmarks, last week, reached levels not seen since December 2014, with Brent touching $70.05 dollars a barrel and WTI reaching as high as $64.77.
For Nigeria, the situation is a welcome development as funding for the 2018 budget has been a challenge for government.
President Muhammadu Buhari had last year presented a budget proposal of N8.6 trillion for 2018, representing an increase of 16 per cent from the 2017 Appropriation Bill.
Under the budget assumption, government pegged oil price benchmark at $45 per barrel and oil production at 2.3 million barrels per day (bpd), including condensates.
With oil price now at $70 per barrel, that is $25 excess of the budget benchmark, multiplied by 2.3million bpd, that gives $57.5 million per day. In a month, that amounts to $1.725 million.
In working with market dynamics, Bank of America Merrill Lynch on Monday raised its 2018 Brent price outlook to $64 a barrel, from $56, forecasting a deficit of 430,000bpd in oil production compared to demand this year.
“Tighter fundamentals are (the) main driver to the rally in prices, but geopolitical risk and currency moves along with speculative money in tandem have exacerbated the move,” US bank, JPMorgan, said in a note.
But a number of analysts have warned that the 13 percent rally since the start of the year could peter out in the short term due to global refinery maintenance and rising North American production.
US energy companies added 10 oil rigs in the week to January 12, taking the number to 752, energy service firm, Baker Hughes, said on Friday. That was the biggest increase since June 2017.
In Canada, energy firms almost doubled the number of rigs drilling for oil last week to 185, the highest level in 10 months.
Vienna-based consultancy, JBC Energy, expects US production to grow by 600,000bpd in the first quarter of 2018 compared to a year earlier.
“From a fundamental perspective, the surge in US-managed money raises a clear red flag for us. We see the US complex as decidedly bearish over the next two months.”
The surplus in crude is expected “to widen to levels that will overwhelm the market,” JBC said in a note. Seasonal refinery maintenance will further limit demand for crude, it added.