Oil price drops below budget benchmark


By Sebastine Obasi and Ediri Ejoh
The decline in the global oil price in the last week may shake the federal government's economic projections for 2019 as well as have an adverse impact on its MTEF Medium Term Expenditure Framework if the trend is not reversed soon.

OPEC's Organization of the Petroleum Exporting Countries (OPEC) shows prices are still dropping to a new high of $ 59.96 a barrel yesterday. The new price is now below the federal government's budget reference of $ 60 for the 2019 budget.

President Muhammadu Buhari, Minister of Petroleum Resources, Ibe Kachikwu, Minister of State, Petroleum Resources and Maikanti Baru, MD Group, NNPC

As a result, the budget already sent to the National Assembly is now being considered before it is even considered and debated.

The first drop is expected to be Nation's surplus, ECA, which the National Economic Council (NEC) said was above $ 2.09 billion on Oct. 16, 2018.

As a result, capital expenditures, which are the main thrust of the 2019 budget and the MTEF, as well as the ERGP's ERGP, can undergo a downward revision.

Why oil prices are falling

Several factors are at stake. In particular, there are signs that oversupply is increasing. The shale fracking industry is generating more supplies as Iran's output is still reaching the markets thanks to US sanctions waivers. OPEC, the cartel of the producers, is likely to vote to cut production when it meets next month. That expectation is not providing much relief now, though. Oil is also being hit by the general fall in asset prices this fall, and is suffering from fears that the global economy will slow in 2019.

The trend of swelling US inventories, which remain the focus of investors, suggests that the huge crude surplus continues to offset the cut in OPEC output despite containing investor ambitions. The global oil and gas sector would have lost about $ 1 trillion in value over a 40-day period since October, after oil prices fell about $ 20 a barrel. Standard and Poor's 500 listed US companies lost $ 240 billion. ExxonMobil, for example, lost $ 35 billion in value.

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Some analysts have warned that OPEC will need to cut output to balance the market. "If they do not cut it, I guarantee it will be 2014 again," said Mike Bradley, managing director of Tudor, Pickering, Holt and Company energy investments. Also speaking, former president of the Petroleum Technology Association of Nigeria, PETAN, Bank-Anthony Okoroafor said: "OPEC members are committed to achieving market stability because they are already planning to cut this excess from 1 million to 1.5 million per day during their December meeting. . Saudi Arabia and Russia are also reviewing major cuts a day. That will definitely help deal with this low crude oil price. "

The Texas Nightmare

An infestation of points, thousands of them, represents oil wells in the Permian basin in western Texas and a slice of New Mexico. In less than a decade, US companies are known to drill 114,000. Many of them would make a profit even with barrel prices as low as $ 30 a barrel. The OPEC nightmare is only going to deepen next year when Permian producers hope to eliminate distribution bottlenecks that will add three pipelines and up to 2 million barrels of oil per day.

"The Permian will continue to grow and OPEC needs to learn to live with it," said Mike Loya, Americas' chief executive of the Vitol Group, the world's largest independent oil trading house. The US energy surge presents OPEC with one of the biggest challenges of its 60-year history. If Saudi Arabia and its allies cut production when they meet on December 6, 2018 in Vienna, higher prices would allow shale to steal its share of the market. But because the Saudis need higher prices to make money than US producers, OPEC can not allow prices to fall.

OPEC mobilizes to combat declining oil prices

As uncertainty obscures the future of crude oil prices, OPEC is determined to decide how to reduce the oil supply in order to avoid further falls in prices. Saudi Arabia is specifically calling for an immediate cut by OPEC producers for a daily production of one million barrels from the beginning of next year. Meanwhile, Saudi Arabia said it is taking the lead by cutting production to 500,000 barrels a day in December. The move aims to stabilize oil prices that have fallen rapidly in recent times, thus affecting the finances of OPEC members and global oil companies. Meanwhile, analysts believe Opec, led by Saudi Arabia, of course, "is acting responsibly, reducing its production it had already brought online to offset possible Iranian losses."

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