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Oil Price Falls Below 2019 Budget Benchmark

With the decline of  global oil price in the last one week, the Federal Government’s economic projections for 2019 may be left shattered and adversely impact the Medium Term Expenditure Framework, MTEF, if the trend does notreversed soon. Data from the Organisation of Petroleum Exporting Countries, OPEC, shows that prices are still trending downwards and hitting a new low of $59.96 per barrel Monday. The new price is now below Federal Government’s budgeted benchmark of $60 for 2019 Budget.

 

The budget already sent to the National Assembly is now facing a review even before it is considered and debated. The first casualty is expected to be the Nation’s excess crude account, ECA, which the National Economic Council (NEC) said stood at over $2.09 billion as at October 16, 2018. Consequently, capital expenditure, which form the major thrust of the 2019 budget and the MTEF as well as the Economic Reform and Growth Plan, ERGP, of the present federal government may suffer downward review.

 

As uncertainty beclouds the future of crude prices, OPEC is set to decide on how to cut crude supply in order to forestall further declines in price. Saudi Arabia specifically is clamouring for an immediate cut by OPEC producers to a daily output of one million barrels starting early next year. In the meantime, Saudi Arabia has said it is taking the lead by cutting its output to 500,000 barrels a day come December. The move is aimed at stabilising crude prices which have declined rapidly in recent times, thereby affecting the finances of OPEC members and global oil companies. Meanwhile, analysts believe OPEC, led by Saudi Arabia, of course, “is acting responsibly by reducing its production that it had earlier brought online to offset possible Iranian losses.”

 

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