Adewale Sanyaolu
Against the backdrop of rising global crude oil prices, Nigerian stakeholders yesterday called for more robust fiscal and financial buffers by the Federal Government.
Their call came as benchmark oil price neared $90 per barrel, closing at $85.07 on Tuesday. In line with this development the stakeholders warned the Federal Government against reckless spending so as to help Nigerians reap the benefits of an upward movement in oil price.
The 2018 budget was bench-marked at $51 per barrel, an indication that the government was earning nearly double its projection.
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The experts, who spoke in the face of rising oil prices, regretted similar upswing in oil prices never translated to improved infrastructure and better life for Nigerians.
Director, Centre for Energy Economics, University of Ibadan, Prof. Adeola Adenikinju, for instance, said the development remained a good one for Nigeria if the resources can be deployed to the right channels through proper accountability.
He said the spike in price would lead to increased foreign exchange earnings for the country, boost foreign reserves, and protect the currency against depreciation while helping it to fund capital projects and raw materials imports.
Adenikinju argued that the history of oil has always been about instability and volatility, warning that, the fact that prices are on the upward swing today, doesn’t mean they won’t go down again, adding that the country has gone through the cycle before.
Based on the age-long history of oil price movements, he advised that government should use the opportunity of the increase to save for the rainy day by having building fiscal and financial buffers through the excess crude account.
For his part, a financial analyst with Financial Derivatives Company (FDC), Mr. Mukthar Jimoh, on Channels Television, Business Morning, said the oil price spike is good news for Nigeria because it would help it to fund its budget and other capital projects.
He equally said the development would help the Central Bank of Nigeria (CBN) to continue to defend the naira against global currency shocks.
But also advised that the country should display more transparency in the management of oil wealth for the benefit of all.
The monetary expert said this period is an opportunity for Nigeria to increase its excess crude account which has witnessed shortfall in recent time.
Meanwhile, shipments of West African oil to Asia are set to hit a two-month high in October as Chinese
refineries scramble for alternatives to Iranian crude before U.S. sanctions take effect on Nov. 4.
Loadings for Asia will rise to 2.52 million barrels per day (bpd) in October, equivalent to 75 percent of total output from Angola, Nigeria, Republic of Congo, Ghana and Equatorial Guinea.
This compares to September’s 2.27 million bpd, which was almost 70 percent of regional output.
China has been the main driver for Asian demand before the implementation of U.S. sanctions that analysts estimate will remove 500,000 bpd to 2 million bpd of Iranian oil from the market.
Chinese imports from West Africa are set to rise to a record 1.94 million bpd, or 60 cargoes, in October from 1.5 million bpd, or 45 cargoes, in September.
West African grades tend to produce a large proportion of high-value distillates, such as diesel or jet fuel, much like Iranian crude oil, making it an attractive replacement.
Other buyers across Asia and Europe have also said they would cut back on purchases of Iranian oil, unleashing a burst of demand for West African and other crude rich in distillates, such as grades from Saudi Arabia or the North Sea.
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The looming deadline on Iranian crude is not the only factor behind the surge in demand for October cargoes to China.
Independent Chinese refineries, known as teapots, eased up on imports earlier in the third quarter for maintenance.
Now they are restocking before the end of the month, as their import quotas are based on purchases made from January to October.
“The resurgence of Chinese teapot buying could not have come at a more awkward time for the oil market,” consultancy Energy Aspects wrote.