Again, crude oil price falls below revised benchmark, as IEA lowers demand forecast

Former Finance Minister, Ngozi Okonjo-Iweala

For the second time in a month, crude oil price at the international market slipped below the revised benchmark proposed in the 2015-2017 medium term expenditure framework (MTEF) submitted to the National Assembly for approval.

The Organization of Petroleum Exporting Countries (OPEC) daily basket price, which stood at $60.50 per barrel on Thursday, added $1 and a cent to close at $61.51 per barrel on Friday.

The price, which continued its free fall to a five-year low levels, came as the International Energy Agency (IEA) lowered its 2015 demand forecast for the fourth time in five months.

The agency had estimated that global oil demand in 2015 would grow by 230,000 barrels per day amid declining crude oil prices, as the production of shale oil by United States impact output.

The IEA had relied on expected daily supplies outside OPEC in 2015 to be about 200,000 barrels, projecting output to expand by 1.3 million barrels per day to about 57.8 million per day.

Following the decline of the price close to the benchmark price of $78 per barrel in the year’s budget, from a high of over $114 earlier in the year, the Federal Government announced a review of the price to $73 per barrel.

The review was announced by the Minister of Finance, Ngozi Okonjo-Iweala, who said government was also compelled to revise proposed expenditure in the MTEF from N4.8 trillion to about N4.6 trillion, with oil production left at 2.27 million barrels per day.

But barely two weeks after the revision exercise, the federal government was, again faced with the dilemma of resubmitting fresh MTEF, revising the oil benchmark by another 12 per cent to $65 per barrel.

According to Mrs. Okonjo-Iweala, government had adopted a scenario-based strategy that would enable it contend with the situation even if the price were to decline below $60 per barrel.

“We have always been clear that the price could certainly fall lower, and that’s why we took this scenario-based approach. I have said openly that we have done scenarios around $70, $65, $60, and we will kick those scenarios in as the situation evolves,” he minister said.

With new level currently below $62 per barrel, government appears under a fresh pressure to further adjust the proposed benchmark in the budget proposal submitted to the National Assembly for consideration and approval.


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