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Nigeria’s 2019 budget benchmark is predicated on $60 per barrel, though as of the time the budget was been prepared, crude oil price hovered around $50. It drew criticism and was considered unrealistic.
“Notwithstanding the recent softening in international oil prices, the considered view of most reputable analysts is that the downward trend in oil prices in recent months is not necessarily reflective of the outlook for 2019,” President Buhari had stated in his budget address while justifying the crude oil budget benchmark.
The country’s 2019 budget tilt more on crude oil revenue projected at N3.73tn. With the non-oil revenue estimated at N1.39tn, this leaves the economy vulnerable to oil price volatility and poses a major budget risk.
Another major shortcoming of the budget is the plan to borrow N1.649tn for the purpose of financing the budget deficit. Thus, with the recurrent spending estimated at N4.72tn, (inclusive of the provision made for the implementation of the new minimum wage), the economy could run into a major hitch should the sudden collapse of oil price in 2014 re-occur.
However, the rising Middle East tension which has boosted crude prices and kept prices above $70 level, at a time escalating trade war between the US and China is keeping oil prices subdued, is lending a helping hand to Nigeria’s budget challenges.
“Given that nearly one-third of global oil production and nearly all of global spare capacity are in the Middle East, the oil market is very sensitive to any attacks on oil infrastructure in this region,” Swiss bank UBS said.
The attacks took place against a backdrop of US-Iranian tension over Iranian nuclear capabilities, its missile program and its support for proxies in Yemen, Iraq, Syria and Lebanon.
Asian shippers and refiners have put ships heading to the Middle East on alert and are expecting a possible rise in marine insurance premiums after the recent attacks on Saudi oil tankers and pipeline facilities, industry sources said. This may ultimately push up oil prices.
Also, armed drones attacked two of Saudi Aramco’s oil pumping stations and forced the state producer to briefly shut its East-West pipeline, known as Petroline. The drone attacks pushed up global oil prices by more than 1 percent.
The Petroline is important because it is an alternative route for Saudi Arabia’s oil exports that bypasses the Strait of Hormuz.
Prince Khalid bin Salman Saudi Arabia’s deputy defence minister accused Iran of ordering the attack on Saudi oil pumping stations but the Houthis, which have been battling a Saudi-led military coalition for 4 years, said they carried out the drone strikes against the East-West pipeline.
While the Middle East tension persist, the International Energy Agency (IEA) said the world would require very little extra oil from the Organization of the Petroleum Exporting Countries (OPEC) this year as booming US output will offset falling exports from Iran and Venezuela. The energy watchdog also revised its forecast for 2019 growth in global oil demand 90,000 barrels per day lower to 1.3 million bpd.