Nigeria economic outlook brightens as oil prices hit $69

Nigeria’s economy outlook brightened further this week as oil prices hit $69.
According to Bloomberg data, Brent for March settlement climbed as much as 44 cents, or 0.6 percent, to $69.26 a barrel on the London-based ICE Futures Europe exchange after advancing 1.5 percent on Tuesday to the highest since December 2014 as U.S Inventories fell by 11.2 million barrels last week.
This will be the biggest decline for this time of the year since 1999.
Brent price is likely to hit $70 per barrel in a couple of days, and this has both positive and negative implications for Nigeria.
”The rise in oil price will increase Nigeria’s GDP, which translates to economic growth. In addition to this, there will be an upward movement in the country’s foreign exchange reserves,” said Emmanuel Afimia, Energy Analyst, Afimia consulting Services.
“On the other hand, as a result of the rise in the price of petroleum products in the US, importation of these products will become dearer, thereby increasing the burden on NNPC and other importers of petroleum products. Hence, the resurgence of the debate on the issue of petroleum subsidy,” Afimia added.
The Nigerian National Petroleum Corporation (NNPC) may have spent over N195 billion which was not appropriated for in the 2017 budget by the national assembly as fuel subsidy.
This figure is arrived when the cumulative figure of the subsidy figure contained in the corporations monthly financial statement in October is added together with what the Minister of State for Petroleum, Emmanuel Ibe Kachikwu disclosed on the floor of the Senate, that about N85.5 billion was spent in the last three months of 2017.
The corporation in order to keep the subsidy from the public glare titled the expenditure as “under-recovery” in its monthly financial report rather than calling it subsidy.
NNPC in its Monthly Financial and Operations Report for October 2017, released recently, declared that in January 2017, it made a provision of N37.264 billion for under-recovery.
Under-recovery, in downstream petroleum marketing parlance, is when the expected open market price of PMS is below the approved official retail price at the pump. The expected open price is a combination of the cost of importation and distribution of the commodity, such as marketers’ margins, landing cost and freight cost.
According to the report, provision for fuel subsidy in January was the highest in the 10-month period, while in February, March, April and May 2017, the NNPC deducted N6.3 billion, N8.206 billion, N8.206 billion and N7.74 billion respectively, for subsidy payments.
In addition, the report pointed that the NNPC recorded ‘under-recovery’ of N11.8 billion, N10.25 billion, N7.94 billion, N7.52 billion and N6.85 billion for June, July, August, September and October 2017 respectively.
The money utilized for funding the subsidy payments, according to the report, was from the proceeds of the NNPC sale of its domestic crude oil allocation, thereby cutting down the amount of money remitted to the Federation Account.
“We are seeing the global increase in the price of oil as a result of reduction in the US shale inventories and the crises in Iran, however, in the coming months I believe oil price will normalize and might not exceed $70,” said Dolapo Ashiru CEO, MegaCapital financial services limited.
Ashiru added, “Bulk of the cash expected to fund the 2018 budget is coming from oil, so this is more good news for us as a county, it means Nigeria will have more money to fund the budget and there is every possibilities the FG might surpass its oil revenue benchmark as major macroeconomics indices such as external reserves, and other key macro-economic variables are all improving fast.”
Increase in international oil price has reflected in the nation’s external reserves as it hit a new level of $40.4bn.
“Majority of the world outlook for 2018 are very positive so it’s not the end for US shale production as global economics expand ,there will be increase in demand for oil, so the US shale will always have its market to make profit,” Ayo Akinwummi,head of research, FSDH merchant bank.
“It’s a two edged sword for Nigeria as its signal the increase in oil revenue in 2018, it also signal government will increase it continuous funding of the much talked about “subsidy,” Akinwummi added.
The price of crude oil has consistently being on the rise since the time OPEC and non-OPEC members decided to extend their production cuts to March 2018.
Olufemi Olawore, executive secretary, Major Oil Marketers Association of Nigeria (MOMAN), insists that the NNPC would continue to be faced with vagaries of international oil prices so far as the local refineries are not working.
According to him some of the charges that are incurred by oil importers would have been eliminated if the refineries are up and running.

OLUSOLA BELLO & Dipo Oladehinde