BARELY a week after the Organisation of Petroleum Exporting Countries, OPEC, and its allies, popularly known as OPEC+, slashed global supply by two million barrels per day, mb/d, the price of Nigeria’s Bonny Light has risen to $99.02 per barrel.
Before the cut, which also witnessed Nigeria’s OPEC oil target dropping to 1.742 mb/d in November 2022, from 1.826 mb/d in August, the oil price had hovered around $80 per barrel.
If the current price is sustained into 2023, Nigeria would record more than $29 per barrel in excess of the $70 per barrel benchmark of next year’s budget, also based on the production of 1.69 mb/d.
However, in a telephone interview with Vanguard, yesterday, Professor Emeritus in Economics and Executive Director, Emmanuel Egbogah Foundation, Wunmi Iledare, expressed doubt that the price regime would be sustained till 2023, due to increased pipeline vandalism, oil theft, and illegal refining in the Niger Delta.
He said: “Setting the budget at $70 bp/d and output at 1.65 mb/d makes the budget outlook quite stochastic. It seems the price of crude is demand-determined, not supply constraint, even though the capacity to produce 1.65 mb/d is there, the likelihood to attain and sustain that output in 2023 is less likely than not.
“At best, that output may even be the potential and not most likely because of oil theft, insecurity, divestment, and onshore basin maturity.
“I do not have the data to affirm that under the lingering COVID-19 impact on the global economy, and uncertainty surrounding the transition to renewable, it is highly plausible that $70 bp/d is sustainable. I do, however, believe that tying the budget to a single price is not advisable without reporting the likelihood estimate.
“So, I have never liked betting the fiscal budget blindly on things out of national control with no estimates of the likelihood of failure reported to the National Assembly.
“My advice to the incoming administration is to budget based not on production and price, but on historical contributions from the oil sector and non-oil sectors. I am hopeful that non-oil sector projections are not based on oil output and its price.
“Regarding the exchange rates, the dual exchange rate mechanism is counterproductive and it’s making the forex market unstable. Of course, the major source of forex instability is petroleum subsidy.
“The subsidy puts too much pressure on the forex demand and in the process enhances black market influence on the exchange rate.
“The way out is to criminalize black market trading without a license and perhaps modulate the pricing of hard currency based appropriately on supply and demand fundamentals.”
Also, in another interview with Vanguard, Lead promoter, EnergyHub Nigeria, Dr. Felix Amieyeofori, said: “I believe $70 per barrel and 1.69 mb/d per day are achievable in 2023 if the new government sustains the tempo of the war against crude theft and vandalism in the Niger Delta.
“Crude oil is a global commodity that is now driven more by geopolitics than market forces. OPEC+ has agreed to cut back 2mmbls from November this year apparently to stabilize the price, more as a preemptive move against looming global recession.
“One major challenge will be the IoC divestments and the takeover by Independents: if the new owners will be able to pull in the required funding to maintain and also grow production and reserves in the face of shifting of resources to clean energy investments.
“The new Government in 2023 must ensure full implementation of the PIA in order to optimize the operating environment for investors. Otherwise, funding will be a challenge.
There must be collective efforts from all sectors and agencies between the government and the private sectors to midwife the 2023 budget targets.”
In its statement obtained by Vanguard, OPEC+, had stated: “In light of the uncertainty that surrounds the global economy and oil market outlooks, and the need to enhance the long-term guidance for the oil market, and in line with the successful approach of being proactive, and pre-emptive, which has been consistently adopted by OPEC and non-OPEC Participating Countries in the Declaration of Cooperation, the Participating Countries decided to reaffirm the decision of the 10th OPEC and non-OPEC Ministerial Meeting on 12 April 2020 and further endorsed in subsequent meetings, including the 19th OPEC and non-OPEC Ministerial Meeting on 18 July 2021.”
While presenting the 2023 budget to the National Assembly, President Muhammadu Buhari said: “Based on these fiscal assumptions and parameters, total federally-collectible revenue is estimated at 16.87 trillion Naira in 2023.
“Total federally distributable revenue is estimated at 11.09 trillion Naira in 2023, while total revenue available to fund the 2023 Federal Budget is estimated at 9.73 trillion Naira. This includes the revenues of 63 Government-Owned Enterprises. Oil revenue is projected at 1.92 trillion Naira, Non-oil taxes are estimated at 2.43 trillion Naira, FGN Independent revenues are projected to be N2.21 trillion.”