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Udoma Explains Government’s Intensification of Oil Exploration

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  • Udoma Explains Government’s Intensification of Oil Exploration

Nigeria’s Minister of Budget and National Planning, Senator Udoma Udo Udoma, at the weekend in Lagos said the federal government was aware of the diminishing long-term prospects of crude oil, explaining that this was why it was important to maximise the use and exploitation of the nation’s petroleum resources now.

Udoma stressed that this was also why the government was determined to move away from exporting raw crude oil and instead to encourage local refining and processing, as well as the local production of the various derivatives from crude oil for which there will continue to be domestic and international demand.

He spoke during an interactive session with civil society organisations and private sector players on the 2017 Medium Term Economic Framework (MTEF) and Fiscal Strategy Paper (FSP) and said the government was considering total oil production volume of 2.3 million barrels per day with an oil price benchmark of $45 per barrel for the 2018 budget.

He said the government was targeting revenue generation of N5.16 trillion for 2018 as against N5.08 trillion in 2017. The amount would be generated from oil revenue estimated at N2.1 trillion; non-oil revenue of N1.36 trillion; dividend from Nigeria Liquefied Natural Gas -N29.58 billion, and minerals and mining — N1.06 billion.

Others are independent revenue from agencies of government — N847.9 billion, domestic recoveries and fines — N364 billion, other federal government recoveries — N138.43 billion and grants and donor funding — N281.6 billion.

He said the budget would also be predicated on an exchange rate of N305/$ as well as 12.42 per cent inflation rate.

Other budget benchmarks which the minister stressed that might also be adjusted included nominal GDP of N133.97 trillion and N81.60 trillion nominal consumption.

He explained: “The MTEF outlines the federal government’s fiscal policies and our macroeconomic projections for the next three years from 2018 to 2020 and it provides the broad framework for the 2018 budget.

“In line with the goals of the Economic Recovery and Growth Plan (ERGP) 2017-2020, the medium term fiscal policies of government will be directed at achieving macroeconomic stability, accelerating growth, intensifying economic diversification and promoting inclusiveness.
“The need to look onwards to boost non-oil revenues cannot be overemphasised, as we diversify.

“We are on track to achieve full recovery and return firmly to the path of growth. Fiscal prudence must be observed at all levels of governance.”

He said the MTEF and FSP were drawn from the Economic Recovery and Growth Plan (ERGP) 2017-2020, which is the blueprint guiding all the economic plans of the government.

The ERGP, the minister stated, was itself the product of extensive consultations with a broad spectrum of Nigerians, including development experts, top economists and other critical stakeholders, adding that all budgets prepared within the planned period must be drawn from, and align with the provisions of the ERGP.

During the interactions, he explained the basis for the key assumptions and macroeconomic framework contained in the proposed MTEF, particularly the projections for oil production levels, crude oil price benchmark, exchange rate, inflation rate and GDP growth rate, among others.

These, Udoma noted, were all being exposed for consideration and discussion purposes, and welcomed comments and suggestions on them.
He said the consultations, which started penultimate Thursday with the governors, and continued last Tuesday and Thursday with the National Assembly, CSOs, private sectors operators (PSOs), the media and general public in Abuja, were for the purpose of seeking public input into the preparation of the MTEF as recommended by the provisions of the Fiscal Responsibility Act.

The minister explained that though government’s plan, as set out in the ERGP, is to diversify the economy as soon as possible away from reliance on crude oil proceeds, “we need the revenues from crude oil to fund the necessary infrastructure investments that are required to provide the enabling environment for the diversification of the economy into agriculture, manufacturing, construction and services”.

Udoma stated that the production level of 2.3 million barrels per day (mppd) projected for 2018 is realisable, adding that the country has the technical capacity to produce much more than that.

From available statistics from the Nigerian National Petroleum Corporation (NNPC), he stated that with the inclusion of current condensates production of 400,000 to 450,000 barrels a day, “we have been able to produce more than two million barrels a day at some periods this year”.

Addressing concerns raised over the level of borrowing and the continued provision for a deficit in the budget, the minister, while appreciating the concerns about the growing debt figures, explained that the issue was not so much about debt problem, but much more of a revenue problem.

According to him, even with the current levels of borrowing, the country’s fiscal deficit is still well within the three per cent threshold prescribed by the Fiscal Responsibility Act, adding that government was continuously monitoring the deficit level to ensure that it remains within the threshold.

The minister also admitted that it would be very challenging to achieve the target GDP growth rate of 4.8 per cent set out in the ERGP for 2018.

However, he emphasised that it could be achieved if the country is able to attract a high amount of private sector investment to drive economic growth.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Crude Oil

Oil Dips Below $62 in New York Though Banks Say Rally Can Extend

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Oil Dips Below $62 in New York Though Banks Say Rally Can Extend

Oil retreated from an earlier rally with investment banks and traders predicting the market can go significantly higher in the months to come.

Futures in New York pared much of an earlier increase to $63 a barrel as the dollar climbed and equities slipped. Bank of America said prices could reach $70 at some point this year, while Socar Trading SA sees global benchmark Brent hitting $80 a barrel before the end of the year as the glut of inventories built up during the Covid-19 pandemic is drained by the summer.

The loss of oil output after the big freeze in the U.S. should help the market firm as much of the world emerges from lockdowns, according to Trafigura Group. Inventory data due later Tuesday from the American Petroleum Institute and more from the Energy Department on Wednesday will shed more light on how the Texas freeze disrupted U.S. oil supply last week.

Oil has surged this year after Saudi Arabia pledged to unilaterally cut 1 million barrels a day in February and March, with Goldman Sachs Group Inc. predicting the rally will accelerate as demand outpaces global supply. Russia and Riyadh, however, will next week once again head into an OPEC+ meeting with differing opinions about adding more crude to the market.

“The freeze in the U.S. has proved supportive as production was cut,” said Hans van Cleef, senior energy economist at ABN Amro. “We still expect that Russia will push for a significant rise in production,” which could soon weigh on prices, he said.

PRICES

  • West Texas Intermediate for April fell 27 cents to $61.43 a barrel at 9:20 a.m. New York time
  • Brent for April settlement fell 8 cents to $65.16

Brent’s prompt timespread firmed in a bullish backwardation structure to the widest in more than a year. The gap rose above $1 a barrel on Tuesday before easing to 87 cents. That compares with 25 cents at the start of the month.

JPMorgan Chase & Co. and oil trader Vitol Group shot down talk of a new oil supercycle, though they said a lack of supply response will keep prices for crude prices firm in the short term.

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Crude Oil

Oil Prices Rise With Storm-hit U.S. Output Set for Slow Return

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Crude oil

Oil Prices Rise With Storm-hit U.S. Output Set for Slow Return

Oil prices rose on Monday as the slow return of U.S. crude output cut by frigid conditions served as a reminder of the tight supply situation, just as demand recovers from the depths of the COVID-19 pandemic.

Brent crude was up $1.38, or 2.2%, at $64.29 per barrel. West Texas Intermediate gained $1.38, or 2.33%, to trade at $60.62 per barrel.

Abnormally cold weather in Texas and the Plains states forced the shutdown of up to 4 million barrels per day (bpd) of crude production along with 21 billion cubic feet of natural gas output, analysts estimated.

Shale oil producers in the region could take at least two weeks to restart the more than 2 million barrels per day (bpd) of crude output affected, sources said, as frozen pipes and power supply interruptions slow their recovery.

“With three-quarters of fracking crews standing down, the likelihood of a fast resumption is low,” ANZ Research said in a note.

For the first time since November, U.S. drilling companies cut the number of oil rigs operating due to the cold and snow enveloping Texas, New Mexico and other energy-producing centres.

OPEC+ oil producers are set to meet on March 4, with sources saying the group is likely to ease curbs on supply after April given a recovery in prices, although any increase in output will likely be modest given lingering uncertainty over the pandemic.

“Saudi Arabia is eager to pursue yet higher prices in order to cover its social break-even expenses at around $80 a barrel while Russia is strongly focused on unwinding current cuts and getting back to normal production,” said SEB chief commodity analyst Bjarne Schieldrop.

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Crude Oil

Crude Oil Rose Above $65 Per Barrel as US Production Drop Due to Texas Weather

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Crude Oil Rose Above $65 Per Barrel as US Production Drop Due to Texas Weather

Oil prices rose to $65.47 per barrel on Thursday as crude oil production dropped in the US due to frigid Texas weather.

The unusual weather has left millions in the dark and forced oil producers to shut down production. According to reports, at least the winter blast has claimed 24 lives.

Brent crude oil gained $2 to $65.47 on Thursday morning before pulling back to $64.62 per barrel around 11:00 am Nigerian time.

U.S. West Texas Intermediate (WTI) crude rose 2.3 percent to settle at $61.74 per barrel.

“This has just sent us to the next level,” said Bob Yawger, director of energy futures at Mizuho in New York. “Crude oil WTI will probably max out somewhere pretty close to $65.65, refinery utilization rate will probably slide to somewhere around 76%,” Yawger said.

However, the report that Saudi Arabia plans to increase production in the coming months weighed on crude oil as it can be seen in the chart below.

Prince Abdulaziz bin Salman, Saudi Arabian Energy Minister, warned that it was too early to declare victory against the COVID-19 virus and that oil producers must remain “extremely cautious”.

“We are in a much better place than we were a year ago, but I must warn, once again, against complacency. The uncertainty is very high, and we have to be extremely cautious,” he told an energy industry event.

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