In what will be said to be good news for the nation, the price of Brent crude in the international market hit an all-year-high yesterday, finally surpassing the country’s budgetary benchmark which was set at $38 per barrel by trading at $39 per barrel.
Brent crude had fallen dramatically since December 2015 which had put a setback on Nigeria’s economic activities as the nation depends largely on oil. It continued to fall and in January, it traded for $28 per barrel, which is an all time low.
But from mid February, the price of the Brent crude began to rise slowly but steadily and economic experts in the nation caution the Federal Government to be conservative with the extra funds accruing from the slow rise in oil price, as it will help the nation hold steady in the midst of its current economic storm.
But yesterday, the price of Brent crude in the global market, rose to an all-year high of $39.50 from $27.10 on January 20.
Tension in Nigeria’s economy began when the 2016 budget was benchmarked at $38 per barrel ans then global oil prices plummeted. And although the price of Nigeria’s crude has not been officially quoted by the nation’s apex bank – CBN, sources say the price has risen above the budget benchmark of $38 per barrel to the region of $40 per barrel.
Following the increase, experts has called on the Federal Government to be cautious in their spending. Wilifred Iyiegbuniwe, a Professor of Finance at the University of Lagos (UNILAG), said though the increase will have a positive impact because the inflow of foreign currency will improve, the benchmark should not be reviewed.
Any recovery of the oil proceeds should go to a special fund. The economic team and the Federal Government should determine what should be done with it. Such excess revenue should be used to diversify the economy into such areas as agriculture, solid minerals and manufacturing. However, the benchmark should not be reviewed.
An economist, Henry Boyo, also said:
What happened every time the price was high above the benchmark? Was there greater employment? Was there relief in exchange rate? Was there improved productivity? We should think collectively as Nigerians, who are stakeholders in the polity.
Meanwhile, Minister for National Planning, Dr. Udoma Udo Udoma, who had initially said low crude oil prices would not affect the 2016 budget, insisting that the budget is achievable had gone back on this earlier statement when he said about a week ago that the country may have to review the budget benchmark as early as June, based on the recurrently low crude oil prices.
The benchmark of $38 per barrel of price of oil is not sacrosanct because of the subsisting global environment. If at mid-year there is no improvement, we will come back to you for mid-term review. The review may come as quickly as June this year.
However, the increase in the price of Brent crude followed the talk that some members of the Organisation of Petroleum Exporting Countries (OPEC) planned to meet other oil producers in Russia around March 20 for new talks on an oil output freeze. Nigeria has been pushing for action by the OPEC because the slump in oil revenue has undercut its public finances and currency.
The Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, stated this on Thursday, forecasting the meeting would spark a dramatic reaction in crude prices. He was quoted by Reuters to have told a conference in Abuja:
We’re beginning to see the price of crude inch up very slowly. But if the meeting that we’re scheduling between the OPEC and non-OPEC producers, happens about March 20, we should see some dramatic price movement.
Both the Saudis and the Russians, everybody is coming back to the table. I think we’re very humbled today to accept that if we get to a price of $50, it will be celebrated. That’s a target that we have.