ougher times seem to lie ahead for Nigeria as crude oil price tumbled
four per cent on Monday to $36-40 per barrel, coming close to an
11-year low, and potentially endangering the implementation of the 2016
budget, which is predicated on an oil price of $38 per barrel and output
of 2.2 million barrels of crude per day.
More frightening was that the
Bloomberg data revealed that the world’s cheapest oil is already close to $20 in non-OPEC countries as against $35 in OPEC states.
The
sharp drop in crude oil prices followed growing fears that the global
oil glut would worsen in the months to come in a pricing war between the
Organisation of Petroleum Exporting Countries (OPEC) and non-OPEC
producers.
Latest data by
Bloomberg yesterday noted that
prices were sliding in non-OPEC member countries because OPEC member
states in economic turmoil want higher prices without having to cut
their own production, relying instead on Saudi Arabia to be a ‘swing’
producer.
OPEC, rising from its meeting on December 4, in Vienna,
Austria, had decided to maintain crude oil output despite pressure to
cut production to ameliorate the effects of the plummeting prices on
member countries’ revenues.
OPEC has always insisted on
maintaining crude oil production, saying it could only agree to cut
production if non-OPEC members would be willing to do the same.
Nigeria’s
oil minister and OPEC president until last week, Emmanuel Kachikwu, had
disclosed after the Vienna meeting that the group considered cutting
production but decided that a reduction “even of five per cent” was not
likely to push prices higher if non-OPEC producers, which make up about
two-thirds of global production, do not join in cutting.
The
decision was contrary to expectations from Nigeria and other OPEC
members that the organisation would reduce production output to boost
crude oil prices which have been on the downward trend since June last
year.
Goldman Sachs, one of the most influential banks in
commodity markets, also recently said that oil could fall to as low as
$20 per barrel amid fears that the world is running out of storage
capacity.
In its statement on the global crude oil crash
penultimate Friday, the International Energy Agency (IEA) corroborated
both reports, saying that the global supply glut was likely to deepen
next year and put more pressure on prices.
According to the
Bloomberg data, a blend of Mexican crude plunged 73 per cent in 18 months to $28 on December 11, its lowest level since 2004.
There
was also Iraq offering its heaviest variety of oil to buyers in Asia
for about $25, while in western Canada, its crude has slumped 75 per
cent to $21.37, the least in almost eight years.
Apart from
Western Canada Select, which is heavy and sulphurous, other varieties,
including Ecuador’s Oriente, Saudi Arabia’s Arab Heavy and Iraq’s Basrah
Heavy were selling below $30, the data showed.
Venezuela is also not insulated as it is experiencing similar lows.
“More
than one-third of the global oil production is not economical at these
prices,” Ehsan Ul-Haq, senior consultant at KBC Advanced Technologies
Plc, said by e-mail.
Oil has slumped to levels last seen in the
global financial crisis in 2009 amid a global supply glut, but the data
underlined that while the prices of benchmarks, West Texas Intermediate
and Brent, hover in the $30s, they represent a category of crude — light
and low in sulphur — that is more highly valued because it is easier to
refine.
But the data showed that some producers of thicker,
blacker and more sulphurous varieties have suffered heavier losses and
were already living in the $20s.
Global benchmark Brent slid 5
cents to $37.87 a barrel on the London-based ICE Futures Europe exchange
at 11:38am Singapore time. WTI was unchanged at $36.31.
Even at
that, oil prices from OPEC, which supplies about 40 per cent of the
world’s crude, are trading below the main two benchmarks.
The daily price of 12 crudes produced by OPEC stood at $33.76 a barrel on Monday, the lowest in seven years.
The prices of both benchmarks have fallen every day since OPEC, on December 4, abandoned its output ceiling.
OPEC
has been pumping near record levels since last year in an attempt to
drive higher-cost producers such as United States shale firms out of the
market.
Bloomberg had also noted that, in the past six
sessions, oil prices have shed more than 13 per cent each due to the
glut that followed the cartel’s action.
In addition to the current
excess inventory in the global oil market, which is estimated at 1.5
million barrels per day, new supply is likely to hit the market early
next year as Iran ramps up production once sanctions are lifted.
The imminent lifting of sanctions against the country followed the July agreement on its disputed nuclear programme.
Iran’s
crude oil exports are set to hit a six-month high in December as buyers
ramp up purchases in expectation that sanctions against the country
will be lifted early next year,
Reuters quoted an industry source as saying.
On
Friday Gulf, producers and Russia have said they would not cut output
even if prices fell to $20 per barrel, also due to the low cost of
production in those areas.
But in Nigeria, the average cost of
production by the International Oil Companies (IOCs) is about $30 per
barrel, thus making it difficult for Nigeria to sustain production in a
very low price regime of $30 and below.
The drop in the global
benchmark Brent crude to $39 per barrel yesterday is threatening the
yet-to-be-presented N6 trillion Nigeria federal budget for 2016. The
Federal Executive Council (FEC) approved the budgetary amount at its
meeting on Monday, with a proposal for $38 per barrel as the oil
benchmark price, down from $53 this year, 2015.
The Excess Crude
Account, into which the country saves the difference between the market
price of oil and the budget benchmark to provide a cushion when oil
prices fall or extra cash is needed for spending on infrastructure, has
been depleted in recent times as oil revenues plunged.
The
account, which stood at about $4.11billion in October 2014, dropped to
$2.45 billion in December that year, down from about $3.11 billion in
November. The balance in the ECA was put at $2.1 billion in July this
year.
We’re studying the situation – NNPC
Top
officials at the NNPC informed LEADERSHIP that the corporation is
keenly studying the situation and would advise the federal government on
the way forward, even as he said the bench -mark pegged for the crude
oil in the 2016 budget cannot be altered.
“We want to assure
Nigerians that there is no cause for alarm on the issue of current price
of crude,” said the source who spoke off the record. “We are keenly
studying the situation, even though we cannot tinker with the benchmark
pegged in the 2016 proposed budget. But certainly, we would be advising
the government on the best way forward.”
Experts urge FG to seek alternative funding for budget
…Says oil benchmark can be retained
As
crude oil price yesterday fell to $20 a barrel, the federal government
has been advised to seek alternative means of funding the budget, which
is largely based on revenue from oil price benchmarked at $38 a barrel.
Speaking
with LEADERSHIP last night, industry analyst, Dan Kunle, advised that
the $38 benchmark could be retained, but said the budget spread sheet
can be tinkered with by the Ministry of Finance to reflect the daily
changes in the price of oil.
He explained that it will be
unrealistic to have the National Assembly change the benchmark of oil
price every day or week the price of oil changes at the international
market, saying that this will alter the nation’s budget planning
mechanism.
He noted that the “benchmark can be left at the current
price but the budget spread sheet can be tinkered with to reflect
current reality. The finance ministry can copy the president, the Senate
president and Speaker of the House on the actual price as it changes.
“Our
headache now should be how to seek alternative source of funding,
specifically cheap loans and growing locally generated revenue, like tax
and import duty.”
While noting that it will not be a palatable
2016 for Nigeria, Kunle said the oil price issue is caused by a cold war
between the US and Russia and Iraq and Iran, and could take long in
stabilising.
He said while the US is not perturbed by cheap oil
prices as that will allow it buy cheap oil from other nations and grow
its reserves, countries like Nigeria are bearing the brunt of the
problem.
He, however, advised that government must consider taking
loans to fund catalytic projects like railways, roads and pipelines,
rather than social projects.
Another expert, Joey Amadi, a retired banker, wondered why the oscillation in crude oil prices should be a problem.
For
him, no country will be free if oil prices are abnormally low. He
believes the average of the year will be more robust than the less than
$38 which was adopted.
“We should just wait, pray, and we are out of it,” he said.
Kachikwu begins massive crackdown on pipeline vandals
Following
President Muhammadu Buhari’s directive for zero tolerance to crude oil
theft and pipeline vandalisation, and the measures put in place by the
minister of state for petroleum and group managing director of the NNPC,
Dr Ibe Kachikwu, 20 pipeline vandals have been arrested by a combined
team of Nigerian Navy, the Army and other security agencies
collaborating with the NNPC/PPMC to monitor and patrol the pipelines.
The
Pipelines and Products Marketing Company (PPMC) said the suspects were
intercepted by a patrol team between the Atlas Cove and Mosimi depot.
The PPMC said the 20-man syndicate was specifically smashed at the Ilado/Ilase pipelline axis.
“Between
the Atlas Cove and Mosimi depot, a team of Nigerian Navy, the Army and
other security agencies collaborating with the NNPC/PPMC apprehended a
20-man syndicate group which included a woman.
“These are
notorious members of a gang engaging in pipeline vandalisation and
product theft along the Ilado/Ilase pipeline axis. Also confiscated from
the vandals are two Hilux trucks, with thousands of jerry cans filled
with petroleum products, equipment and several generators.
“The
suspected vandals have been taken into custody at the Nigerian Naval
Base, Western Command, Apapa, and are awaiting further interrogation.”
(LEADERSHIP NEWSPAPER)
