Oil prices rose on Tuesday amid supply cuts by producer club, OPEC and Russia, although a darkening economic outlook may soon weigh on growth in fuel demand.
Brent crude oil futures LCOc1 were at $59.47 per barrel at 0950 GMT, up 48 cents, or 0.81 percent from their last close.
Nigeria’s 2019 budget benchmark is put at $60 per barrel with a proposed daily crude oil production of 2.3 million barrels per day.
Industry watchers have criticised the Federal Government for using these assumptions to prepare the budget because they are not reliable in view of the volatility of crude oil price and inter regional politics in the Middle East.
Also, Nigeria, which is a net importer of petroleum products, will as usual suffer the brunt of spike in the price of crude oil because of her unwise economic decisions in support of subsidy.
The government budgeted about N305 billion in support subsidy in the 2019 budget. This is against the popular opinion, which favours total deregulating the downstream sector of the petroleum sector.
According Muda Yusuf, director-general, Lagos Chambers of Commerce and Industry (LCCI), said perhaps the biggest fiscal burden on the economy today was the petroleum subsidy regime.
“It is a big hole in the finances of government. It puts tremendous pressure on the foreign reserves and the foreign exchange market, just as it exerts immense stress on the nation’s treasury. It remains a cause for concern that the subsidy regime had subsisted, especially at time when the economy is facing unprecedented fiscal challenges; at a time when productivity in the economy is constrained by acute infrastructure deficit; at a time when public institutions are finding it hard to pay salaries. There cannot be a better example of resource misapplication,” he said.
According to the minister of state for petroleum, Ibe Kachikwu, Nigeria spent N1.4 trillion on fuel importation in nine months, from January to September 2018. Analysts believe that it would have been up N1.7 trillion by the end of 2018.
Brent crude oil futures LCOc1 were at $59.47 per barrel at 0950 GMT, up 48 cents, or 0.81 percent from their last close.
US West Texas Intermediate (WTI) crude futures CLc1 were at $50.92 per barrel, also up 0.81 percent or 41 cents.
“OPEC-led cuts and declining U.S. rig counts have bolstered market sentiment in the new year,” Singapore-based brokerage Phillip Futures said.
The Middle East-dominated Organisation of the Petroleum Exporting Countries and allies including the world’s number two producer Russia agreed in late 2018 to cut supply to rein in a global glut.
In the US, the number of rigs looking for new oil production has dropped from a 2018 peak of 888 to a still-high 873 in early 2019.
The rig data, released on Friday, pointed to a potential dent in production growth which was at more than 2 million barrels per day last year, making the US the world’s top oil producer.
Meanwhile, the US last November re-imposed sanctions against Iran’s oil exports. Although Washington granted sanctions waivers to Iran’s biggest oil customers, mostly in Asia, the Middle Eastern country’s exports have plummeted since.
However, Japan expects to restart oil imports from Iran as early as this month, the Nikkei business daily reported on Tuesday, with some Japanese banks notifying customers they will resume transactions for oil purchases.
South Korea expects to receive Iranian oil imports in January after a four-month interruption. On the demand side, an economic slowdown continues to loom over oil and financial markets.
The gains in crude futures on Tuesday came after losses of more than 2 percent the previous session as weak Chinese trade data pointed to a global economic slowdown.
China’s National Development and Reform Commission on Tuesday signalled it might roll out more fiscal stimulus to stem any further decline in growth.
HSBC said it was cutting its average 2019 Brent price forecast by $16 per barrel, to $64 per barrel, citing surging US production and an “increasingly uncertain demand backdrop.”
