2019 budget under siege as oil price hits 14-month low

With oil price falling to a 14-month low at $58 per barrel on Tuesday from $86 per barrel in October, Nigeria’s 2019 budget which is to be presented to the National Assembly on Wednesday may suffer a serious setback.

National Daily gathered that with oil price at $80 during the period of the preparation of the 2019 budget, the implementation of the budget is increasingly under threat

Though Nigeria’s daily output was about 1.9 million barrels per day, the federal government also predicated the budget on the 2.3 million barrels per day.

Also N305 was proposed as exchange rate to the dollar, with government planning also to work to keep inflation down after slight increases in the last two months on the heels of 18 months consecutive decline.

However, the Minister of Budget and National Planning, Senator Udoma Udo Udoma, had said the federal government was considering a leaner 2019 budget of N8.6 trillion, against the N9.1 trillion approved by lawmakers for 2018.

Both oil benchmarks have shed more than 30 per cent since early October due to swelling global inventories.

The Organisation of the Petroleum Exporting Countries (OPEC) and other oil producers agreed this month to curb production by 1.2 million barrels per day (bpd), equivalent to more than one per cent of global demand, in an attempt to drain tanks and boost prices.

But the cuts won’t happen until next month and meanwhile production has been at or near record highs in the US, Russia and Saudi Arabia, undermining spot prices.

Russian oil output hit a record 11.42 million bpd this month, an industry source told Reuters.

Oil production from seven major US shale basins is by the year-end expected to climb to more than eight million bpd for the first time, the US Energy Information Administration said.

Inventories at the US storage hub of Cushing, Oklahoma, delivery point for the oil futures contract, rose more than 1 million barrels from December 11 to 14, traders said.

The US has surpassed Russia and Saudi Arabia as the world’s biggest oil producer, with total crude output climbing to a record 11.7 million bpd.

With prices falling, unprofitable shale producers will eventually stop operating and cut supply, but that could take some time, and meanwhile inventories keep growing.