Amidst demand and price drop, Nigeria proposes $78 per barrel oil price benchmark for 2015 budget

Nigeria is proposing an oil price benchmark of $78/barrel as oil benchmark for the 2015 budget, amidst concerns over falling oil prices in the international market.

The International Energy Agency (IEA) has projected that demand for oil in 2015 will grow far slower than previously forecast as global economies remain weak and prices may extend their sharp fall so long as OPEC shows no sign of countering a supply surge. The IEA said it cut its 2015 estimate for oil demand growth by 300,000 barrels per day (bpd) from its previous forecast and now expects demand growth of 1.1 million bpd to 93.5 million. It cut its 2014 estimate by 200,000 bpd to 0.7 million bpd.

However, Schlumberger the world’s largest oilfield services company, said oil and gas spending would increase in 2015 as global oil demand is poised to rise, downplaying fears of an investment slowdown due to weak crude prices.

Saudi Arabia is quietly telling oil market participants that Riyadh is comfortable with markedly lower oil prices for an extended period, a sharp shift in policy that may be aimed at slowing the expansion of rival producers including those in the US shale patch.

The 2015 oil price benchmark, which is slightly higher than the $77.50/b price for the current 2014 budget, was contained in the Medium Term Expenditure Framework sent by President Goodluck Jonathan to national assembly.

The oil production target was set at 2.278 million b/d, lower than the 2.38 million b/d of oil output assumed for 2014, as the government admitted that crude oil theft still posed a major threat to aims to increase oil production.

Oil, which has been trading well below $90/b in the international market in recent weeks, accounts for around 80 percent of Nigerian government revenue. However, large-scale theft of its crude and a reduction in exports following the increase in shale oil production mainly by the US, has posed a major threat to Nigeria meeting its revenue targets. The US, previously Nigeria’s biggest crude importer, no longer imports crude from the country.

Data released by Nigeria’s central bank showed Nigerian oil output averaged 1.9 million b/d in the second quarter, unchanged from the previous quarter but well below the government’s output target of 2.38 million b/d for 2014.

It is believed that planned increase in spending in 2015, a general election year, may be behind the proposal to raise the oil price benchmark, with expenditures put at Naira 4.817 trillion compared with Naira 4.7 trillion in 2014.

Frank Uzuegbunam