The international prices of crude oil spiked yesterday, raising hopes in the country that Nigeria could meet its financial obligations to its citizens and fulfil its global commitments in the short term as the Brent sold for $34.42 per barrel With dwindling prices of the country’s major revenue earner in the last few weeks, the federal government had had to realign its 2020 budget in the face of current economic realities which have seen the price fall from close to $60 per barrel to just about $20.
But yesterday, the price of crude oil spiked, gaining as much as 15 per cent in just a few hours, with increasing reports that the members of the Organisation of Petroleum Exporting Countries (OPEC) and their allies would be holding a virtual meeting to discuss an end to the price war, mainly between Russia and Saudi Arabia.
Consequently, the oil market, which was already experiencing a glut, saw prices crash to an 18-year low in March as the two countries engaged in a price war after Russia declined to join OPEC in deepening production cuts, prompting Saudi Arabia to lower prices and increase output.
The country’s financial projections for the year were also compounded by the impact of the COVID-19 pandemic, which has led to the international buyers of the country’s crude oil cutting down on their purchase and consumption, leaving Nigeria’s crude stranded at sea.
But as the prices began to tumble, the Muhammadu Buhari-led government announced some significant changes to its 2020 budget as measures to contain the effect of the outbreak of coronavirus on the nation’s economy.
It outlined a plan to implement a 50 per cent cut in revenue from privatisation proceeds and a review in crude oil benchmark price down to $30, while crude oil production, but kept daily production at 2.18m barrels per day.
With an initial oil benchmark of $57 per barrel in the 2020 budget, the Federal Executive Council was also forced to approve reductions in capital budget by 20 per cent, and 25 per cent cut in recurrent expenditure.
The federal government also adjusted downwards Customs revenue of N1.5 trillion, in anticipation of a significant reduction in economic activities, cut down capital expenditure by 20 per cent across ministries, departments and agencies and also a 25 per cent cut of all government owned enterprises.
However, the upswing in the price of crude oil which started on Thursday continued yesterday with Brent crude oil, the international benchmark, climbing as much as 15 percent to $34.42 per barrel while West Texas Intermediate crude oil, the U.S. benchmark, gained as much as 12 percent to $28.31.
There were reports that the alliance was willing to cut production, after President Donald Trump indicated in a tweet that he expected Russia and the Saudis to slash production by about 10 million barrels per day.
A Reuters report indicated that OPEC and its allies could meet as early as Monday to discuss a production cut amid the coronavirus pandemic.
“US West Texas Intermediate crude surged as much as 13 per cent to $28.56 per barrel after gaining 25 percent on Thursday. International benchmark Brent crude jumped 17 per cent to $34.91 per barrel at its yesterday intraday highs, continuing the previous day’s 21% gain” the report said.
It added that the cut could be around 10 per cent of global supply, citing an OPEC source, although with this week’s gains, oil prices are still down roughly 50 per cent year-to-date.