Although analysts see the price of the Brent crude international oil benchmark ranging from $59 to $70 per barrel in 2020, based on varying projections for supply, global demand and whether OPEC’s latest production cut deal will see full compliance from member states, Nigeria is hoping to remain above the $57 benchmark for oil prices.
The N10.59 trillion 2020 budget is based on a $57 per barrel oil price benchmark, projected daily oil production of 2.18 mbpd, and a 305 naira per dollar exchange rate.
At 5:07 pm in Nigeria, the front-month ICE Brent March crude futures were up 11% from Tuesday’s settle at $66.23/b, while Nigeria’s Bonny Light dropped to $67.42 per barrel.
If the oil price drops below the benchmark, as household income taxes remain low, the country may explore more borrowing options.
Although OPEC has been assured by the Minister of State for Petroleum Resources, Timipre Sylva, of compliance with cuts, there are questions about the execution of the 2020 budget if oil prices fall below the planned benchmark.
The U.S. Energy Information Administration (EIA) “forecasts Brent spot prices will average $61/b in 2020, down from a 2019 average of $64/b,” it said in a December release, putting U.S. benchmark West Texas Intermediate (WTI) prices on average $5.50 per barrel lower than Brent.
“EIA expects crude oil prices will be lower on average in 2020 than in 2019 because of forecast rising global oil inventories, particularly in the first half of next year,” the organization said.
However, Russia’s crude oil and condensate output hit a record high for the post-Soviet era in 2019, given Moscow’s central role in supporting the OPEC+ coalition’s ongoing production cuts. In 2019, Russia pumped 11.25 million barrels of crude oil and condensate per day (BPD) from 11.16 million BPD in 2018, which was the previous record of production in Russia’s post-Soviet era, according to estimates from Russia’s energy ministry carried by Reuters.
The new record oil production indicates that for most of 2019, one of the main parties to the OPEC+ agreement, and definitely the key party in the producer’s non-OPEC camp in the deal, did not meet its share of the cuts.
According to analyst reports quoting the API’s latest inventory report, US crude inventories dropped 7.8 million barrels for the week ended December 27, which more than doubled the expectations of analysts drawing 3.1 million barrels over the same period, a survey conducted by S&P Global Platts on Monday showed.
Market participants will await the more definitive inventory data from the US Energy Information Administration, due to be published later Friday. Meanwhile, optimism from the OPEC output cuts also helped firm market sentiment, analysts said.
“Global oil benchmarks remain supported however as market fundamentals are projecting for a small supply-deficit over sharp production cuts by OPEC+ [in the first quarter of 2020],” said Benjamin Lu, investment analyst at Phillip Futures.
“OPEC+ has affirmed their commitment to the rebalancing of oil markets with production restraints…A renewal in global risk appetites will keep oil prices trending within the bullish channel for 1Q 2020,” Lu added.
However, the U.S – China trade agreement has boosted oil prices.
“President Trump stated that the China deal is likely to be signed on January 15 and that P2 discussion would commence shortly after that. All of which should provide further impetus for traders to start the year off piling into the consensus long growth rebound trades,” Stephen Innes, AxiTrader’s chief Asia market strategist, wrote in a note Thursday.