How OPEC cuts will affect 2019 budget –Experts

Falling oil price, cuts in production quota by the Organisation of Petroleum Exporting Countries (OPEC), among others, is creating panic in financial sector, as analysts fear the 2019 budget may not be implementable after all.

Nigeria is set to cut its daily oil production output by a minimum of 43,775 barrels from January 2019.

This followed the decision by OPEC to cut 800,000 barrels, or 2.5 per cent of members daily output.

In spite of basing its oil production output at 2.3 million barrel per day, the country has continued to produce less than 2 million barrel of oil per day.

After its meeting in Vienna, Austria, last Friday, the oil cartel agreed that the drop will be for an initial period of six months till June 2019.

In a communiqué after the meeting, the oil body explained that the latest cut would help stabilise and strengthen crude oil prices at the international oil market.

Nigeria has consistently been producing below the 2.3 million barrels daily benchmark in the approved budgets, since 2016.

Benchmark for 2019 Budget

Speaking with State House correspondents after the Federal Executive Council approved the 2019-2021 Medium Term Expenditure Framework (MTEF), and Fiscal Strategy Paper (FSP), the Minister of Budget and National Planning, Senator Udoma Udo Udoma, said oil price benchmark of $60 per barrel, oil production of 2.3 million barrels per day are some of the assumptions being proposed for the 2019 budget.

However, with the latest move by the oil cartel and the volatility of the market which has seen a drop in oil price from close to $80 to about $60 per barrel, analysts are of the view that implementing the budget may pose some challenges.

‘No reason for panic’

However, Nigeria’s representative in OPEC, Mele Kyari, recently told Premium Times that there was no reason for Nigerians to worry over the impact of the cut on the country’s oil output projections.

According to him, “the OPEC decision to cut the output of members affects only Nigeria’s regular oil production, and not condensate.”

Condensates are gas hydrocarbons often classified as ultra-light oil, extracted in liquid form during the oil drilling process.

‘No significant negative impact’

Alluding to Mr. Mele’s position, Professor Uche Uwaleke, insisted that the cut in Nigeria’s quota will not have a significant negative impact on the 2019 budget.

According to Uwaleke, over the years, the country has been producing below its yearly budgeted figure.

“The 2019 budget is based on 2.3 mbpd projection including condensates. The OPEC quota excludes condensates. I do not think a cut in Nigeria’s quota will have a significant negative impact on the 2019 budget, giving the fact the actual crude oil output in Nigeria for many years now, has been below the budgeted figure either due to vandalism of pipeline facilities or repairs and maintenance to oil facilities,” he added.

However, the Lead Director, Think Act Consult, Jaye Gaskia, opined that the country will experience shortfall in its oil revenue.

Jaye told our correspondent that “the 2019 budget was predicated on over 2 million barrels per day production, which means that there will be at least two oil related revenue shortfalls-the first from falling and unstable oil prices which itself, is due to overproduction and oversupply, and the second will be from production cut due to OPEC cuts.”

Implementation hitches

However, the Executive Director, Fiscal, Accountability and Transparency Initiative, Charles Edo is worried that the 2019 budget will be impossible to implement.

“It will be practically impossible to implement the budget, except oil price goes up to fill in for the shortfall in production.

“But if it is at the same price and we are not even meeting up with existing production quota, then the future is bleak for Nigeria. We have to look inwards,” he posited.

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