Nigeria's budgetary projections get a boost after global crude oil prices rise to $62 a barrel

NIGERIA'S prospects of realising her 2019 budgetary commitments have increased over the last few days after global crude oil prices rose slightly to $62 a barrel despite bearish news indicating that the world economy would suffer from the effects of a Chinese slowdown.

Currently the world's second largest economy with a gross domestic product (GDP) of $13.45trn, China has enjoyed average growth rates of 10% over the last 30 years. However, the country saw growth slow to 6.6% during the course of 2018 and there are fears that this may continue during 2019, having a ripple effect on the global economy.

Despite this global oil prices rose, reversing earlier losses, as investors latched on to positive supply-side drivers for the market. Yesterday, Brent crude oil futures were up 11 cents, climbing to $62.81 a barrel, while US crude futures were up 14 cents at $53.94 a barrel.

With Nigeria's 2019 budget predicated on her Bonny Light Crude, which is identical to Brent Light Crude selling for $60 a barrel, the government's projections are looking good. However, the budget is also benchmarked on the country producing 2.3m barrels of oil a day but at the moment, output still hovers around the 2m barrel mark.

Oil industry experts described the rise in crude prices as good for the local economy. Analysts said a more robust backdrop for financial markets, together with the prospect of slower crude production growth, were the major drivers behind the rally in oil.

One expert said: “The stock market performance is one of the reasons why oil keeps marching higher. There also seems to be a general belief that the agreed cut in Organisation of the Petroleum Exporting Countries (Opec) production will be sufficient to balance the market.”

However, crude oil stocks are still up nearly 8% so far this month, which in turn has given investors more confidence to bet aggressively on a rise in crude prices. Analysts believe that while there is concern that a slowing global economy could impact oil demand, production cuts implemented by the Opec are likely to support crude oil prices.

Michael Hewson, the CMC Markets chief market analyst, said: “It remains quite likely that the trade spat with the US has played a part in this latest slowdown. However, investors should also factor in that it simply isn't possible for the Chinese economy to grow at the pace that it has over the last 10 years, in the next 10 years.”

ING commodities strategist Warren Patterson, added: “You can’t justify oil prices at these levels. We’re looking basically at an average of almost $70 a barrel for Brent in 2019 and I am getting increasingly concerned about how tight the market will be going into 2020.”

A separate report from China’s National Bureau of Statistics yesterday showed crude oil refinery throughput in 2018 climbed to a record 12.1m barrels per day, up 6.8% from the previous year. In the US, energy companies cut the number of rigs drilling for oil by 21 in the week to January 18, taking the countdown to 852, the lowest since May 2018, according to energy services firm Baker Hughes.