More Trouble for 2019 Budget as Oil Price Slumps to $53

NNPC boosts Yuletide with N75bn petrol subsidy

Ejiofor Alike in Abuja with agency reports and Chineme Okafor

The implementation of the 2019 budget presented recently to the National Assembly by President Muhammadu Buhari has continued to face increasing threats as oil prices dropped further yesterday, nearing their lowest level this year.

The global stock markets also declined after they came under pressure from concern about a United States government shutdown and a worsening world economy.

The price of oil has already fallen by more than 30 per cent so far this quarter to its lowest since the third quarter of 2017.

Reuters reported that investors have grown increasingly wary of the impact to global growth, and crude demand, from an escalating trade dispute between the US and China.

The US Senate has been unable to break an impasse over President Donald Trump’s demand for more funds for a wall on the border with Mexico, and a senior official said the shutdown could continue until January 3, 2019.

As investors flocked to perceived safe-haven assets such as gold and government debt, at the expense of crude oil and stocks, Brent crude futures were down 58 cents at $53.24 per barrel.

Also, the US crude futures fell 90 cents to trade at $44.69.

Brent fell 11 per cent last week and hit its lowest since September 2017, while US futures slid to their lowest since July 2017, bringing the decline in the two contracts to 35 per cent so far this quarter.

The macroeconomic picture and its impact on oil demand continue to pressure prices.

Global equities have fallen nearly 9.5 per cent so far in December, their biggest one-month slide since September 2011, when the euro zone debt crisis was unfolding.

The trade dispute between the United States and China and the prospect of a rapid rise in US interest rates have brought global stocks down from this year’s record highs and ignited concern that oil demand will be insufficient to soak up any excess supply.

Global benchmark crude had hit this year’s high of $86 per barrel in October before it slumped to $53 yesterday.

With oil at $53 per barrel, the implementation of Nigeria’s 2018 budget is under threat as the N8.8trillion budget was predicated on oil price of $60 per barrel.

The Economic Recovery Growth Plan (ERGP) had proposed $50 for the 2019 budget but this was ignored as oil price hovered around $80 during the budget preparation.

The federal government also predicated the budget on the 2.3 million barrels per day even though the current output is still around two million barrels per day.

In order to drain the excess crude oil at the international market and boost prices, the Organisation of the Petroleum Exporting Countries (OPEC) and other oil producers, including Russia agreed this month to curb output by 1.2 million barrels per day (bpd).

But the cuts will not happen until next month, and production has been at or near record highs in the US, Russia and Saudi Arabia.

However, should that fail to balance the market, OPEC and its allies will hold an extraordinary meeting, United Arab Emirates Energy Minister Suhail al-Mazrouei said on Sunday.

NNPC Boosts Yuletide with N75bn Petrol Subsidy

Meanwhile, the Nigerian National Petroleum Corporation (NNPC) said it had imported three billion litres of fuel to avert the scarcity of the product during the Christmas, and New Year 2019, indicating that the corporation may have incurred a total of about N75 billion as ‘under-recovery’ cost to subsidise the product during the period.

NNPC now uses the term, ‘under-recovery’ to describe the cost of subsidising petrol imports, to retain the pump price at N145 per litre.

The state oil company disclosed yesterday that under-recovery cost has dropped from about N80 per litre to N25 per litre due to the drop in the price of crude oil.

With this development, the imported three billion litres of petrol may have culminated in an under-recovery cost of N75 billion.

Based on the 60 days, which the NNPC said the three billion litres would last at the average consumption of 50 million litres per day, the corporation may be recording an under-recovery of N1.250 billion daily to keep petrol pump price at government regulated price of N145 per litre.

NNPC’s Group Managing Director, Dr. Maikanti Baru, told journalists in Abuja yesterday that under-recovery cost had declined alongside the prices of crude oil at the international market.

Baru spoke after inspecting petrol stations within the Federal Capital Territory (FCT), Abuja to boost the corporation’s efforts at checking scarcity of petrol during the Yuletide.

Baru, who stated that the NNPC had stockpiled its petrol reservoir to take Nigeria for about 60 days, explained that when oil prices were around $80 per barrel, the NNPC incurred as much as N80 under-recovery on every litre of petrol it brought into Nigeria.

He added that while the corporation made efforts to ensure Nigerians celebrated the Christmas and New Year without petrol scarcity, some people he didn’t disclose their identities, attempted to disrupt the plans, adding that the corporation was fast to checkmate them.

“We started out at Nyanya and then here. Unlike 24 of December last year, there was scarcity, today we started with our eyes clear, and no eye-bags.

“Today, we are having much lower crude oil price and under-recovery has also gone down significantly,” Baru said, while indicating it was around N25 per litre.

According to him: “We don’t have much control over under-recoveries, although, it feels good as producers of crude oil, that if prices of crude oil goes up, then we have more revenue come in terms of crude oil sales, however, when you are importing, the product prices actually follow the crude prices almost immediately.

“When we had very high crude prices – over $80 per barrel, we were seeing under-recovery getting to N70 to N80 per litre, and as it dropped – it came to about $60 per barrel, the pricing has also gone down and under-recoveries. The only measure we can put in place is to ensure we are sufficiently prepared to keep bringing products.”

Asked what the NNPC did differently to ensure there was not a repeat of the December 2017 situation, Baru, said it stockpiled petrol and ensured no marketer could hoard or divert products as they allegedly did in 2017.

“There was a lot of work. This time last year, we were in a very bad situation in terms of supply, and we also experienced a lot of sharp practices – the oil marketing companies were very busy diverting products, hoarding products. Of course, we were aware of some of their collaborators that aided and abetted them to divert products.

“It got to a point that as much supply as we put in, they were taking and locking them up, but with the support and approval of Mr. President, we were able to bring in a lot more product than was required to make sure that despite their hoarding activities and diversion, there was much more product available on ground than their activities, to the point that we built up stock and in late January and early February we were bringing double of the daily requirement into the country,” he stated.

He added: “At the moment, we have 60-day supply in-tank, about three billion litres of PMS that will last us without bringing any drop of fuel in 60 days. We are seeing clear into the election period, so if they are planning for similar situation beyond the Yuletide into the election period, we are going to disappoint them.

“There will be sufficient product, and if any has hoarded, they should better bring it out into the market.”