Brent oil prices tumbled Wednesday underneath $35 for the first time in 11 years, plagued by abundant oversupply and amid the ongoing row between key producers Iran and Saudi Arabia.
The AFP reported that at about 10:30 GMT, European benchmark Brent North Sea crude oil for February delivery sank to $34.83 per barrel, the lowest level since July 1, 2004.
This comes amid calls for the Federal Government to reduce the crude oil benchmark price of $38 per barrel contained in the 2016 to 2018 Medium Term Expenditure Framework and Fiscal Strategy Paper sent to the National Assembly for next year’s budget.
On December 14, the Lagos Chamber of Commerce called for a reduction in the benchmark, warning that the draft budget benchmark for crude oil looks very fragile given the continued and projected boost of supply side of oil in the international market and its potential impact on price.
Two weeks later, the Trade Union Congress also called for a reduction of the benchmark price.
The Chairman, TUC Rivers State, Mr. Chika Onuegbu, who conveyed the union’s “serious concerns about the budget proposal,” said the budget was “laudable and ambitious, but seems unachievable.”
The call by the TUC followed the projection by the International Monetary Fund that the price of crude oil could fall to as low as $20 per barrel this year.
Onuegbu, who noted that the basket oil price of the Organisation of Petroleum Exporting Countries stood at $32.14 per barrel as of December 24, 2015, said, “Anyone who is a keen observer of the events that are shaping the crude oil price will recognise that we are in for a sustained low crude oil price regime.
“Accordingly, it is doubtful if the budgeted oil revenue of N820bn will be realised in 2016. If the budgeted oil revenue is not realised, this will negatively impact on the 2016 budget performance.
“It is, therefore, important that the government begins to make contingency arrangements should the crude oil price fall below the benchmark price or better still, review the benchmark oil price downwards.”
Crude oil revenue accounts for about 90 per cent of Nigeria’s foreign exchange earnings and although the Federal Government has said it is targeting much higher non-oil revenue this year, there are doubts about its ability to seriously achieve the goal.
The TUC, which noted that the government planned to raise N1.5tn from independent sources to fund the proposed N6tn 2016 budget, said, “The Federal Government’s revenue projections for oil revenue, non-oil revenue (non-oil taxes) and independent revenue sources are very ambitious.
“They come with the risk that they may most likely be unachievable. If they become unachievable, then the planned expenditure, especially the planned N1.8tn capital expenditure, will become a mirage.”