By Dipo Olowookere
An economic expert, Mr Orji Udemezue, has faulted the second reduction of the crude oil benchmark for the 2020 budget by the federal government.
In May 2020, the central government slashed the threshold to $25 per barrel from the $30 per barrel it was first reduced to in March 2020 from the initial $57 per barrel when the budget was signed into law by President Muhammadu Buhari.
When the 2020 Appropriation Bill was signed last December, the price of oil was averagely around $60 per barrel, but it started to crash this year when Saudi Arabia and Russia started a price war and then the Coronavirus pandemic. At a point this year, the commodity was sold for $11 per barrel.
In late April, oil producers in the world came together and agreed to cut supply by 10 percent or 9.7 million barrels per day so as to lift prices.
The agreement took effect on May 1, 2020 and the cut has been very effective because the price of crude oil has since picked up and as at yesterday, it traded at $39 per barrel.
Speaking recently on federal government’s decision to further slash the benchmark to $25 per barrel, Mr Udemezue said government was too quick to cut the threshold from $30 per barrel, arguing that it was should have been left alone.
“The federal government, in my opinion, was too hasty in slashing the crude oil benchmark,” the Managing Director of Flame Academy & Consulting Limited said on Channels TV’s Business Morning monitored by Business Post last month.
According to him, government should have known that the prices of crude oil will continue to rise as economic activities continue to pick up due to the ease in the lockdowns across nations of the globe.
“It was there for them to begin to see that the demand for oil will pick up and right now, it is somewhere around $30 per barrel (on May 8). It will continue to go up as more activities continue occur,” he said.
According to him, crude price, apart from the Saudi/Russia price war, was mostly affected by COVID-19, which put many economies into a “self-induced coma.”
He said if the central government had put all these into consideration, it should have known that oil will surely pick up before the end of the year, wondering why the haste in reducing the benchmark again after the first one nearly three months ago.
However, he advised government to start to think of life without oil because that reality is already staring at the country. He asked policy makers to think out of the box so as not to get stranded at the end of the day.
“Many global airlines have begun to look at more efficient, less fuel efficient, more fuel efficient aircraft, so they’re going to be replacing the aircraft.
“There have also been innovations around electric motors, alternative energy, climate change concerns and all of that,” he said.
