The globally accepted Brent crude hit a four-month low of $53.33 per barrel on Monday, thereby threatening the accrued income of Nigeria’s Excess Crude Account this year.
The steep decline in oil prices had forced the National Assembly to settle for $53 per barrel as the oil benchmark price for this year’s budget, down from $65 proposed by the Executive, which had to adjust it twice, from $78 to $73, and later to $65.
The ECA, into which the country saves the difference between the market price of oil and the budget benchmark to provide a cushion when prices fall or extra cash is needed for spending on infrastructure, was rapidly depleted in the fourth quarter of last year as oil revenues plunged.
The account, which stood at about $4.11bn in October 2014, dropped to $2.45bn in December, down from about $3.11bn in November. The Ministry of Finance had in May put the opening balance of the ECA in 2011 at $4.56bn; it reached a peak the following year at $8.7bn before declining to $2.3bn in 2013.
The balance in the ECA as of May 2015 was $2.07bn, according to the ministry. Oil prices have recently shown signs of normalcy, with Brent trading at $68 per barrel in May, after losing about 60 per cent of its value between June 2014 and January this year. It reached a peak of $115 per barrel in June last year. Brent, against which Nigeria’s oil is priced, hit $53.33 per barrel on Monday, its lowest level since late March.
The fall came after a steep drop in China’s stock markets spread concerns about the economic health of the world’s biggest energy consumer, amid evidence of a growing crude glut. Oil was also pressured by the sharp increase in the United States drilling activity last week, after data on Friday showed producers adding 21 rigs, the most in over a year, suggesting a ramp up in output as crude futures recovered from six-year lows seen in the first quarter, according to Reuters.
Chinese stocks tumbled more than eight per cent in Asian trading, the biggest one-day drop in eight years that drove European equities markets to a two-week low.
“The combination of the Chinese stock market rout and creeping crude glut is weighing on oil,” the Director, Business Development for oil and gas at Frost & Sullivan, Carl Larry, said.
“That said, Brent’s still seeing support above $50 and US crude is staying above $45. There’s a lot of hedging going on at those levels,” he added.
Global oil supplies had remained ample, with major producers in the Middle East Gulf competing for market share and pumping two to three per cent more than needed, analysts said.