Senate Sets Oil Benchmark at $40 Per Barrel and Naira-US Dollar Exchange Rate at N379/US$
The Senate has pegged crude oil at $40 per barrel and the foreign exchange rate for the Naira-United States Dollar at N379 in the just approved 2021-2023 Medium Term Expenditure Framework and Fiscal Strategy Paper (MTEF/FSP).
The 2021 Appropriation Bill would be predicated on the MTEF/FSP fiscal document parameters.
The approval was after the positive report from the Joint Committee of both the Senate and the House of Representatives.
Senator Solomon Ademola, the Chairman of the Committee on Finance, said the report of the two chambers was their combined position following a careful examination of the differences contained in the 2021-2023 MTEF/FSP document.
The committee also put Nigeria’s Gross Domestic Growth rate at 3 percent, inflation rate at 11.95 percent and FGN revenue at N7.99 trillion.
Federal Government’s total expenditure was pegged at N13.58 trillion while the Fiscal deficit was estimated at N5.60 trillion.
Ademola added that new borrowing was projected at N4.28 trillion for both local and foreign while statutory transfers was predicted at N484.4 billion and debt servicing at N3.12 trillion.
Oil Gains on Saudi Arabia Price Increase
Crude oil rose on the back of Saudi Arabia’s announcement that it has increased January oil prices to Asian and US customers.
Brent crude oil, a global benchmark against which Nigerian oil is priced, appreciated to $71.90 a barrel on Monday at 12:12 pm Nigerian time after plunging to as low as $65.73 a barrel on Thursday.
Saudi Arabia on Sunday announced it had raised January official selling prices for all crude oil grades sold to Asia and the United States by up to 80 cents from the previous month.
This was on the same day reports from South Africa suggested that Omicron was less harsh than previously thought. Still, it was uncertain why one of the world’s leading oil producers raised prices at a time OPEC + is upping production by 400,000 barrels per day and when uncertainty surrounding covid could erode global demand and force existing buyers to embrace competing grades.
“I am struggling to construct a positive narrative out of Saudi Arabia raising prices, especially as it makes competing grades more appealing to their client base. The best I can do is that Saudi Arabia feels confident raising prices despite higher OPEC+ production because it believes omicron is a storm in a test tube and that the global recovery will not be derailed. The South African reports have reinforced that sentiment,” said Jeffrey Halley, Senior Market Analyst, Asia Pacific, OANDA.
US equity and Asian assets responded positively to Omicron’s report this morning, curbing further decline in the global assets from Friday’s decline. However, there is no certainty on the virus given the sample size. More research is needed to better understand the characteristics of the Omicron.
US Fed is now expected to raise interest rates twice in 2022 if it will curtail escalating inflation rate and compel more people to go back to work. Investors are now waiting for Friday’s consumer price report.
Nigeria’s Oil Production Increase – Report
The most recent monthly survey conducted by Reuters has revealed that the Organization of Petroleum Exporting Countries (OPEC) continued to increase its oil production in November under the OPEC+ agreement, but the organization went on pumping less crude oil than its share of the monthly increase just as Nigeria started to see an increase in production.
The country’s oil production had been short until last month when Shell Petroleum Development Company of Nigeria (SPDC) resumed crude exports from the Bonny Light terminal after repairs to a pipeline that had started leaking.
Issues with operation have hindered the country’s crude oil production throughout the second half of the year, with disturbances at other terminals including Forcados, Brass River, Erha, and Qua Iboe.
In the last few months, Nigeria’s production has been below the budgetary benchmark, dropping to 1.37 million barrels per day in October. That rate is 261,000 bpd (barrels per day) below the country’s OPEC+ quota.
Under the OPEC+, the 10 members of the Organization who have been bound by the OPEC+ agreement should be increasing their joint production by 254,000 bpd every month out of the total OPEC+ monthly supply addition of 400,000 bpd.
In November, OPEC’s oil production went up by 220,000 bpd to 27.74 million bpd according to the survey conducted by Reuters. That rise once again fell short of the 254,000 rise which OPEC is expected to implement.
The Reuters survey affirms a trend which began a few months ago, that not all members of the Organization have the ability to produce to their full quotas.
Saudi Arabia, which is OPEC’s top producer and the default leader, saw the biggest increase in production in November. The increase was in line with the country’s target, and the same was seen in Iraq which is OPEC’s second-largest oil producer.
Nigerian production managed a recovery in November from constraints seen in October, but other African oil producers kept on struggling to produce to their targets.
Crude Oil Could Hit $150 a Barrel When Global Economy Fully Reopened
Crude oil price could skyrocket to $150 a barrel when the world economy fully reopened, according to Christopher Wood, the Head of Equity Strategy at Jefferies, an American multinational independent investment bank and financial services company headquartered in New York City.
Brent crude oil, against which Nigerian oil is priced, plunged to $67.46 a barrel on Tuesday amid the uncertainty surrounding the Omicron Covid variant. However, it pared losses on Wednesday, rebounding to $70.94 a barrel as of 3:03 pm Nigerian time.
In spite of about 21 percent decline in the value of the commodity in the last three trading sessions, Wood believed the commodity could rise to as much as $150 per barrel once the world economy fully reopened despite campaigns to halt the use of fossil fuel and embrace more environmentally friendly energy.
Explaining the modalities for his position, he said crude oil rose to over $80 a barrel with the partial reopening of the global economy, this he said was largely due to high demand for fossil fuels even without the usual investment incentives in the sector.
“Oil got to over $80 with a lot of Asia closed,” and China’s borders are effectively still closed, he said, in reference of Beijing’s strict zero-Covid approach. “In a really fully reopened world, the oil price could go to a $150 dollars because the supply constraints are dramatic.”
He claimed the political attack on fossil fuels in recent years was the reason incentive for investment in the sector dropped in spite of its lingering importance, adding that 84 percent of the world’s energy in 2020 was met by fossil fuels.
According to him, because nobody is really investing in fossil energy, supply constraints will continue to support prices, which could hit $150 a barrel.
“The issue for me is not the oil price, the issue is the pandemic. The oil price is gonna go higher in a fully reopened world because nobody’s investing in oil but the world still consumes fossil fuels,” he said.
“So oil can go much higher and that can definitely escalate an inflation scare,” Wood said.
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