Oil Pushes Higher, But There Are Doubts About Output Cut Deal

(FILES) This file photo taken on September 20, 2019 shows employees of Aramco oil company working in Saudi Arabia’s Abqaiq oil processing plant. Saudi Aramco shares hit the lowest level since their market debut today, as Gulf bourses were hit by a panicky sell-off amid Iranian vows of retaliation over the US killing of a top general. Fayez Nureldine / AFP


Oil prices rose Monday after top producers agreed to massive output cuts, but gains were capped as doubts grew about whether the move was enough to stabilise coronavirus-ravaged energy markets.

US benchmark West Texas Intermediate was up about five percent at $23.94 a barrel in Asian afternoon trade, after earlier rallying almost eight percent.

Brent crude, the international benchmark, also fell slightly from an earlier strong rally to trade 4.2 percent higher at $32.83 a barrel.

READ ALSO: OPEC Members Except Mexico Agree To Output Cuts

While the rises were healthy, they were limited compared to the double-digit jumps and falls of recent weeks, with analysts concerned there will be still be massive oversupply in the market as the virus pandemic throttles demand.

OPEC producers dominated by Saudi Arabia and allies led by Russia thrashed out a compromise deal Sunday after Mexico had balked at an earlier agreement struck on Friday.

The videoconference summit agreed to a cut of 9.7 million barrels per day from May, according to Mexican Energy Minister Rocio Nahle, down slightly from 10 million barrel reduction envisioned earlier.

OPEC Secretary General Mohammad Barkindo called the cuts “historic” — and the agreement appeared to mark an end to a bitter price war between Riyadh and Moscow.

Oil markets have been in turmoil for weeks as lockdowns and travel restrictions imposed to combat the outbreak batter demand, while the Saudi-Russian row compounded the crisis.

But analysts were left disappointed at a cut that will go nowhere near to making up for the expected demand loss due to the pandemic, forecast at anywhere between 15 and 30 million barrels a day.

Storage tanks worldwide are also rapidly filling up.

“The deal is a little less than the market expected,” Andy Lipow, president of Lipow Oil Associates LLC in Houston, told Bloomberg News.

“The hard work lies ahead given that the market is very sceptical that OPEC+ are actually going to be able to come up with their near 10 million barrels a day of production cuts.”

AxiCorp’s Stephen Innes added: “There remain concerns the agreement could be a day late and a ‘barrel short’ to prevent a decline in prices in the coming weeks as storage capacity brims”.


FG Proposes Review Of Oil Benchmark To $30pb

Nigeria Signs $523,823 TA Agreement Grant With Islamic Devt Bank
A file photo of the Minister of Finance, Mrs Zainab Ahmed.


The Federal Government is proposing a review of the oil benchmark for the 2020 budget from an initial $57 to $30 per barrel due to the impact of the coronavirus pandemic and the plunge in international oil prices on the nation’s economy.

In a meeting with the leadership of the National Assembly on Wednesday, Minister of Finance, Zainab Ahmed, explained that prior to the COVID-19 and oil price decline, the Nigerian economy was already fragile and vulnerable.

She added that the impact of the pandemic put increasing pressure on the Naira and foreign reserves as the crude oil sales receipts declined and the country’s micro-economic outlook worsened.

Ahmed disclosed that the Federal Government has undertaken cuts to revenue-related expenditures for the Nigerian National Petroleum Corporation (NNPC) for several projects included in the 2020 Appropriation Act passed by the National Assembly in December, 2019.

Read Also: Lawan, Gbajabiamila Meet Ministers Over Planned 2020 Budget Review

“Prior to COVID-19 and Oil price decline, the Nigerian economy was already fragile and vulnerable.”

She also told the leadership of the National Assembly that budgeted revenues for the Nigeria Customs Service have been reduced from N1.5 trillion to N943 billion “due to anticipated reduction in trade volumes; and privatization proceeds to be cut by 50 per cent, based on the adverse economic outlook on sales of the Independent Power Projects (IPPs) and other assets.”

Similarly, Ahmed disclosed that the Federal Government has undertaken cuts to Revenue-related expenditures for the Nigerian National Petroleum Corporation (NNPC) for several projects included in the 2020 Appropriation Act passed by the National Assembly in December, 2019.

“The Federal Government is working on Fiscal Stimulus Measures to provide fiscal relief for Taxpayers and key economic sectors; incentivize employers to retain and recruit staff during the economic downturn; stimulate investment in critical infrastructure; review non-essential tax waivers to optimize revenues, and compliment monetary and trade interventions to respond to the crisis,” the Finance Minister disclosed.

Meanwhile, President of the Senate, Ahmad Lawan, said that an immediate review of the 2020 budget and Medium Term Expenditure Framework is imperative, particularly against the backdrop of the impact of the coronavirus pandemic on the global economy.

“If we have to review the budget itself, we have to consider the MTEF/FSP. Even in sickness, we need the government to provide services. The impact of COVID-19 is well known to all of us in terms of health and the economy. Here, we will be talking of revenues that we estimated to fund the budget 2020. Because the oil price has gone so low due to the impact of COVID-19, the Minister of State should be able to tell us where we will be in the next six months or so.

“We should have concepts that can deliver fast and are sustainable. Anything that we do that cannot provide succor and relief to our people will lead to catastrophe,” the Senate President warned.

House Of Reps Says Review Of Oil Benchmark Is ‘Certain’

House-of-RepresentativesThe House of Representatives in Nigeria says the National Assembly will certainly review the crude oil benchmark price for the 2016 budget.

The possibility of the review was made known to Channels Television on Wednesday by the Chairman of the House of Representatives Committee on Appropriation, Abdulmumin Jibrin.

Nigeria’s 2016 budget had been submitted to the National Assembly in December by the President, with a benchmark of $38 less than the current crude oil price.

This price per barrel has triggered comments about how realistic the budget proposal of 6.07 trillion Naira, with 2.22 trillion Naira deficit and a crude oil benchmark of $38 was.

But on Monday, the Minister of Budget and National Planning in Nigeria, Senator Udo Udoma, tried to allay Nigerians fears, assuring them that the falling crude oil price would not affect the nation’s 2016 budget submitted with the oil benchmark of $38 per barrel.

Senator Udoma spoke at a meeting with members of the National Assembly Committee on Budget and Planning.

He told the lawmakers that there was a plan to cushion all shortfalls that may arise as a result of the drop in oil prices.

According to him, part of the plans would include concession of airports and re-introduction of toll gates on the nation’s highways.

Budget Breakdown

GDP Growth Rate Projection4.37%
Revenue Projection3.86 Naira
Deficit2.22 trillion Naira (equivalent to 2.16% of Nigeria’s GDP)
Oil Related Revenues820 billion Naira
Non-oil Revenues1.45 trillion Naira
 Projected Independent Revenues1.51 trillion Naira
Capital Expenditure1.8 trillion Naira (30%  of total budget)
Works, Power and Housing433.4 billion Naira
Transport202.0 billion Naira
Interior53.1 billion Naira
Special Intervention Programs300 billion Naira
Education369.6 billion Naira
Defence294.5 billion Naira
Health221.7 billion Naira
Ministry of Interior145.3 billion Naira
Foreign and Domestic Debt Service1.36 trillion Naira
Sinking Fund towards the retirement of maturing loans113 billion Naira
Non-debt Recurrent Expenditure2.65 trillion Naira


To address Nigerians concerns, however, the National Assembly is considering the review of the benchmark.

Mr Jibrin said that the new benchmark that would be arrived at would be a practical figure.

The Chairman is also encouraging the executive to fully implement the Integrated Personnel Payroll System as a means of reducing the recurrent part of the country’s budget.

Nigeria relies largely on crude oil sales for its revenue, a situation that the Senate President had also warned against.

Senator Bukola Saraki said on Tuesday that focus must be shifted away from crude oil dependency to non-oil sectors for the government to be able to raise funds that would cater for the budget.


2013 Budget: Lawmaker Says Senate May Override Jonathan

An opposition federal lawmaker, Kabiru Gaya has threatened that the Senate would override President Goodluck Jonathan if he failed to sign the 2013 budget.

Briefing journalists in Abuja, Mr. Gaya said the Senate would this week take a final decision on its next action as regards the budget.

President Jonathan is said to be reluctant about assenting to the budget which was forwarded to him on January 14 following claims that the National Assembly increased the budget by moving allocations from Ministries, Departments and Agencies to fund constituency projects.

President Jonathan was alleged to have, based on the promptings of a senior minister, insisted that corrections on the budget be made in details before his assent.

Besides, the President had at a meeting with the National Assembly leadership raised the issue of the benchmark and the non- provision of funds for the Securities and Exchange Commission (SEC) on account of the retention of Arunma Oteh as Director-General. The National Assembly leadership had politely declined the request on Ms Oteh and the benchmark, saying that the two issues were non-negotiable but agreed to look again at the mistakes in the details of the budget.

Legislators from the opposition parties had given their intention to initiate moves to override a veto should the president refuses to give his assent to the budget by February 13 which made it 30 days after the budget was forwarded to him.

House insists on increase of oil benchmark to $80

The House of Representatives has put aside the recommendation of the executive for a crude oil price benchmark of 75 dollars per barrel, insisting on a $80 benchmark.

The house unanimously approved the recommendation of its joint committee set up to look into the 2013-2015 Medium Term Expenditure Framework and Fiscal Strategy Paper.

The chairman of the committee on finance said the executive had painted a gloomy picture as its justification for its conservative position without giving a balanced view of the issues.

The lawmakers also approved the recommendations that the deficit of the proposed budget and internal borrowing be reduced, while retaining the N160 per dollar exchange rate.

2013 Budget: Sanusi opposes increasing oil benchmark

The Governor of the Central Bank of Nigeria, Lamido Sanusi, on Wednesday kicked against the move by the House of Representatives to raise the crude oil benchmark for the 2013 budget above $75 per barrel.

The 2013-2015 Medium Term Expenditure Framework and Fiscal (MTEF) Strategy Paper proposes to retain the 2012 benchmark of $75 for the 2013 budget.

However, the Joint Committee of the House on Finance and Legislative Budget/Research is recommending a raise in the benchmark to around $82.

The committee, which is headed by Abdulmumini Jibrin, in a preliminary report, argued that increasing the benchmark “will bring in more revenue and cut the deficit of the 2013 budget reasonably.”

According to the committee, the proposed budget already captures a deficit of over N1.3 trillion.

Members of the committee, who met with Mr Sanusi in Abuja on Wednesday to discuss the MTEF, also held the view that raising the benchmark would reduce domestic borrowing, currently put in excess of N701bn.

Arguing the position of the committee, Mr Jibrin said, “Why do we have a problem with increasing the benchmark?

“This will reduce deficit and the money generated will be tied to the provision of services and projects that we are currently borrowing to address.”

But, Mr Sanusi disagreed with the lawmakers.

He said, “Benchmark does not necessarily give you more revenue. You can increase it to $100 if you like, but does that bring money?

“What is important is to increase crude oil production and sales. The $75 is even on a high side relative to other countries. The solution to deficit is not to increase benchmark but to increase the production of crude oil and our OPEC quota.”

He called on the government to tighten security around oil pipelines in the Niger Delta so that it could save the $7bn allegedly lost to illegal bunkering yearly.

“Go and stop the stealing of oil in the Niger Delta. We are losing $7bn to oil theft yearly. This fact was stated by the Minister of Finance. So, go and stop the bunkering; go and bomb the illegal refineries,” he said.

Mr Sanusi observed that Nigeria was always concerned about oil benchmark because it was an import-dependent economy.

He said the government must restructure its development programmes to focus on local production and exportation of finished goods.

The CBN boss said, “We will continue to have these issues if we continue to import things that we can produce.

“We have no business importing fuel; we have no business importing rice from Thailand; we should not be importing meat and all sorts of things that we don’t need because we can produce them.”

To restore investor confidence in the economy, Mr Sanusi advised the government to pursue stable economic policies that would guarantee returns on long-term investments for the private sector.

“People have to be sure that if they invest in a project, another minister will not come and revoke it. You see, they take loans to invest; the investments should not be tied to change of office holders,” he told members of the committee.

He claimed that the myriads of problems confronting the country, including terrorist activities in the North, were caused by economic woes.

Mr Sanusi said, “Kaduna and Jos used to be peaceful cities. Jos, at a time, was the most peaceful city in Nigeria. The youths became militia when the mines were closed. The parents could no longer cater for them.

“Kaduna was flourishing until one after the other, the textile industries were shut.”

Jonathan submits 2013-2015 expenditure framework to Senate

President Goodluck Jonathan on Wednesday forwarded a 2013-2015 medium –term expenditure framework and fiscal strategy paper to the Senate.

The president in the document disclosed that the share of recurrent spending in aggregate expenditure is set to further reduce from 71.47 percent in 2012 to 68.7 percent in 2013 while capital expenditure as a share of aggregate spending is set to increase from 28.53 percent in 2012 to 31.3 percent in 2013.

He said that in line with the policy of consolidation, the fiscal deficit is expected to continue on a declining path from 2.85 percent of GDP in 2012 to 2.17 percent in 2013.

According to the president, the federal government will sustain its efforts to increase revenue as well as that of capital spending in total expenditure, reduce the fiscal deficit and the corresponding borrowing requirement to a more sustainable level.

He further said that government intends to further strengthen fiscal consolidation by scaling back it’s spending and creating a prosperous environment for a private sector led growth.

In furtherance of this, it stated that government would rationalize the large number of agencies based on the recommendations of the Oronsaye committee.

President Jonathan noted that in the light of the huge amount paid on petroleum subsidy in 2011, the government will streamline the management of the subsidy scheme by strengthening the audit and verification process.

He further said that in line with the oil-price based fiscal rule, a cautious oil benchmark price of $75 per barrel has been chosen for 2013-2015 period while oil production of 2.53 mbpd, 2.61 mbpd and 2.65 mbpd will be adopted for the 2013, 2014 and 2015 fiscal years respectively.