2024 Budget in danger over falling crude oil prices

By AYOOLA OLAOLUWA

The implementation of the 2024 budget of N27.5 trillion, which has a commencement date of January 1, 2024, is already threatened as the prices of crude oil in the international market continue to drop, Business Hallmark can report.

The Federal Government had benchmarked the 2024 budget at $77.96 per barrel and 1.78million barrels, made up of crude oil and condensate of between 300,000 to 400,000 barrels per day.

According to President Bola Tinubu during the presentation of the budget to the joint session of the National Assembly on November 29, these conservative estimates were arrived at after a thorough examination of global oil market trends.

His administration also adopted a naira to U.S. Dollar exchange rate of N750 in the 2024 budget.

A breakdown of the 2024 budget estimates indicate that the new administration is targeting N18.32 trillion revenue generation and N9.18 trillion deficit to fund the budget.

Further analysis of the budget estimates as presented by the president showed that capital expenditure will gulp N8.7 trillion, with recurrent expenditure set at N9.92 trillion.

Meanwhile, the continued slide in the prices of crude oil in the global market may put spanners in the economic plans and projections of the government.

On Thursday, November 16, oil prices declined to their lowest level since July 2023, after four consecutive weeks of losses.

While West Texas Intermediate (WTI), also called Texas Light Sweet, fell to $73 per barrel, Brent ended a fourth consecutive weekly loss, closing at $76.88 a barrel at the end of trading on November 16.

BH gathered that the crash in the prices of crude and the fear of loss of revenue created anxiety among the nation’s economic managers. The nation’s economic managers heaved a sigh of relief when oil prices, though temporarily, recovered slightly at the close of trading on Friday, November 17, ending the day at $80.61.

The rebound was, however, short lived, with the price of premium brand, Brent crude, on the downward trend since the beginning of December, hitting a record low of $74 on Wednesday, December 6, the lowest in the year.

At the close of trading on Friday, December 8, 2023, Nigeria’s premium oil grade, Bonny Light, traded at $75.84 per barrel, while WTI closed the day at $71.23, after hitting a low of $68.82 on Wednesday.

An oil and gas expert, Michael Kern, said that hope for oil prices rebound, which recorded seventh consecutive weekly loss at the close of trading on Friday, is slim as demand concerns will continue to drive bearish sentiment.

“With Chinese oil demand slowing down into Q4, OPEC+ production cuts failing to impress the oil market, and non-OPEC supply continuing to grow – with Guyana starting its third FPSO this month – the immediate outlook for oil prices is far from rosy.

“Both WTI and Brent fell to their lowest readings since June, falling below $69 and $74 per barrel, respectively, before regaining some of those losses on Friday morning.

“It would require very positive macroeconomic news or a significant supply disruption to break the bearish spell of recent weeks”, declared Kern, who writes for Oilprice.com.

The fall in the prices of crude oil, our correspondent learnt, is creating fresh concerns for the Federal Government, reliable sources confirmed to BH at the weekend.

According to the sources, the nation’s economic managers had hoped that the spike in crude oil prices in the international market in November will continue to compensate for the shortfall in production caused by oil theft and pipelines vandalism.

“Though oil production had been on the rise since the time of former President Muhammadu Buhari, the country had not really gained from the boom in crude oil.

“What we gained on one hand from crude price appreciation, we lose through the other hand from low production.

“Until recently, Nigeria have been losing about half of its oil production and proceeds to crude shut-ins, thefts and vandalism.

“Even with the current production rate of between. 1.35 million to 1.4 million barrels per day, we are still about 400,000 short of our OPEC quota.

“At today’s price of $75.84 per barrel, that means the country is still losing around $30,336,000 daily and $910,080,000 million monthly or (N819.072 billion a month and N27.303 billion daily) at the exchange rate of N900.

“The loss is massive. However, it had been tempered by the appreciable improvement in oil production in recent times”, one of the sources, who demanded anonymity told our correspondent.

BH analysis of the 2023 budget showed that the Federal Government had initially put crude oil benchmark at $72.3 per barrel. However, It was further raised to $77 per barrel by the National Assembly in the Medium Term Expenditure Framework and Fiscal policy.

According to an oil and gas expert, Engr. Timothy Olapade, any drop in price of oil below $75 will be injurious to the nation’s economy.

“We are running the current budget on $75 per barrel a day and is still gaining about $6 on each barrel despite the recent crash in the prices of crude oil.

“That means we are still making extra $8.4million on the 1.4 million barrels we produce per day.

“However, that is a far cry from the over $21million extra proceeds we were making daily when crude was $90, not to talk of when it was $97.

“I hope the falling trend will abate. If not, the country will soon face another revenue crisis, except it can quickly ramp up its current crude production or look inward for other sources of revenue”, Olapade stated.

If the trend continues, the government, experts argued, will be forced to take more loans to fund the 2024 budget, which will further push up the N9.18 trillion deficit it planned to get through debts next year.

Meanwhile, it is not all news of doom for the country as the crash in the prices of crude oil, experts predicted, may likely result in a downward reduction in the pump price of petroleum products.

According to several estimates given to BH by oil marketers, a litre of PMS may likely sell for between N520 and N535 by the time refined products purchased in the last two weeks reached the shores of the country in January and February 2024.

The product is presently selling officially for N585 to N620 per litre in major filling stations across the country. But that may be little consolation for government; although it may reduce its oil expenditure, it does improve government revenue, only Nigerians may be relieved of the financial burden in lower fuel prices.

In stations owned by independent marketers, petrol sells for more, with Nigerians buying the product for as much as N700 in the eastern and northern parts of the country.

“I don’t know if you noticed it, crude oil is currently selling close to the rate it was when President Tinubu removed subsidy on petrol in May, thereby pushing the price from N185 to N480. When Tinubu removed subsidy, crude was selling for about $72 per barrel.

“Pump price of petrol would have fallen to the post-inauguration rate of about N480 if not for the unification of exchange rate windows by the present administration.

“However, if you factor in the new exchange rate, petrol should sell for between N520 and N530 at fuel stations when new shipments land in the country.

“The situation (crude oil price crash) is a double edge sword. While it will benefit motorists, passengers and fuel consumers on one hand, it could also lead to hardship as the government will not have enough revenue to pay workers salaries, not to talk of having funds to execute developmental projects”, declared Dr. Peju Beckley, a developmental economist.