16 February 2016, Lagos — Nigeria’s 2016 budget may not be fully implemented as expected going by the predicted downward trend in oil price, unless government makes a quick readjustment.
In a report that tempers expectations of an imminent rise in oil price, the International Energy Agency, IEA, said that demand for the oversupplied commodity is unlikely to witness significant growth in 2016.
This is as Iran, Iraq and Saudi Arabia — all members of the Organisation of the Petroleum Exporting Countries, OPEC, ramp up production.
“Having peaked at a five-year high of 1.6 million barrels per day in 2015, global oil demand growth is forecast to ease back considerably in 2016, to 1.2 million barrels per day, pulled down by notable slowdowns in Europe, China and the United States,” Paris-based IEA said in its monthly market report. It added that the recent uptick in the price of Brent crude to $33.31 a barrel from January’s 12-year low of $27.15 a barrel could be a “false dawn.”
“With the market already awash in oil, it is very hard to see how oil prices can rise significantly in the short term,” the IEA report said. “In these conditions the short term risk to the downside has increased.”
This prediction puts Nigeria’s budget on the edge as it is predicated on $38 per barrel, with oil accounting for more than 80 percent of the country’s revenue. While speculation that OPEC members and those outside the cartel may agree to cut production pushed up oil price earlier this month, “the likelihood of coordinated cuts is very low,” the IEA warned.
It said: “Persistent speculation about a deal between OPEC and leading non-OPEC producers to cut output appears to be just that — speculation.”
In January, production from OPEC’s 13 members climbed by 280,000 barrels a day to 32.63 million — 900,000 barrels a day over the average required from the group in 2016, as Iraq, Iran and Saudi Arabia increased output.
The IEA estimated that even if OPEC production did not increase further, global oil stocks would build up by 2 million barrels every day in the first quarter of 2016, followed by a 1.5 million barrel a day increase in the second quarter.
Meanwhile, supplies outside OPEC, including U.S. shale, slipped by 500,000 barrels a day in January over the previous month, halting an annual growth.
This year, non-OPEC output is expected to decline by 600,000 barrels a day, the IEA said. “The big fall-off in production from US shale producers is taking an awful long time,” the IEA report said. “Perhaps resilience still has some way to go.”
However, commenting on the current drop in the prices of oil at the international market, the Minister of Budget and National Planning, Mr. Udoma Udo Udoma, said the budget would not be derailed.
“Our budget is achievable. We have ongoing reforms targeted at diversifying our revenue base, away from single oil commodity economy. Our Minister for Petroleum, Ibe Kachukwu is assiduously applying innovative financing in his oil sector to address any likely revenue gap from our projected or anticipated N820 billion from oil.
“Other reforms are the plugging of leakages through zero tolerance for corruption application of sound public financial collection system such will provide a wide coverage for VAT and personal income taxes collection,” he said.