By Adedapo Adesanya
As recession fears loom globally amid crash in oil prices, which are now trading in dire territory, the federal government has announced a downward review of its oil benchmark for the 2020 budget to $30 per barrel from $57 per barrel.
This is happening as the global market is facing a Russia-Saudi Arabia oil face-off amid the crippling of the black gold by coronavirus epidemic.
Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed, announced on Wednesday that government hopes the country can sustain the projected 2.18 million barrels per day production.
She said, “On benchmark, we are working on the worst-case scenario of $30 per barrel and also we are holding onto the production numbers of 2.18 million barrels per day.
“This you will remember is approved by the National Assembly. This is our own analysis and we will start engaging the National Assembly.”
Prices fell below the country’s new benchmark earlier this week as a tussle between Nigeria’s counterpart at the Organisation of the Petroleum Exporting Countries (OPEC), Saudi Arabia and Russia continue to bite hard. The disagreement followed failure to negotiate a cut oil production so as to lift the already battered prices.
This threw the market into more worries coupled with COVID-19 that has affected demand for the commodity as a result of travel restrictions in several countries of the world. This resulted in oil glut as there are cheap oil with little or no buyers. The travel, tourism and transport sectors, which consumer most of the oil have been on lockdown for weeks.
The consumers of petrol and other fuels are the gainers of this outcome as prices of the end products have been slashed. On Wednesday, President Muhammadu Buhari approved the introduction of price modulation of the commodity to fit the price changes.
According to Mrs Ahmed, “The reason being that at the low crude oil price of $30 to $32 per barrel, there’s no underrecovery. The underrecovery is right now zero, in fact, we are at an overrecovery stage, meaning the PMS price will be reduced to reflect the reduced price of the crude oil in the international market.”
With this, prices were fixed at N125 per litre from N145 per litre.
As at the time of writing, oil prices are recovering but still below the new benchmark. The Brent crude was trading at $28.10 per barrel, while the US West Texas Intermediate (WTI) is up at $23.70 per barrel.
Modupe Gbadeyanka