The implementation of the 2019 budget presented to the National Assembly on Wednesday by President Muhammadu Buhari faces further threat as oil prices fell more than four per cent Thursday.
Oil price hit their lowest in more than one year on worries about oversupply and the outlook for energy demand as a United States interest rate rise knocked stock markets.
Reuters reported that equities dropped worldwide after the US Federal Reserve raised rates and maintained most of its guidance for additional hikes over the next two years, dashing investor hopes for a more dovish policy outlook.
United States light crude oil fell by $2.35 a barrel, or 4.9 per cent, to a low of $45.82, before recovering some ground to around $46.45.
Brent dropped by $2.60, or 4.5 percent, to $54.64 a barrel, its lowest since September 2017, and last traded around $55.54, down $1.70.
Both major oil futures contracts rallied sharply on Wednesday but are now at or close to their lowest levels for over 15 months, more than 30 per cent below multi-year highs reached at the beginning of October.
Global benchmark crude, for instance, hit this year’s high of $86 per barrel in October before it slumped to $55 yesterday.
With oil at $55 per barrel, the implementation of Nigeria’s 2018 budget is under threat as the N8.9trillion budget was predicated on oil price of $60 per barrel.
The Economic Recovery Growth Plan (ERGP) had proposed $50 for the 2019 budget but this was ignored as oil price hovered around $80 during the budget preparation.
The federal government also predicated the budget on the 2.3 million barrels per day even though the current output is still around 2 million barrels per day.
In order to drain the excess crude oil at the international market and boost prices, the Organisation of the Petroleum Exporting Countries (OPEC) and other oil producers including Russia agreed this month to curb output by 1.2 million barrels per day (bpd).
But the cuts will not happen until next month, and production has been at or near record highs in the United States, Russia and Saudi Arabia.
Saudi Energy Minister Khalid al-Falih said on Wednesday he expected global oil stocks to fall by the end of the first quarter, but added that the market remained vulnerable to political and economic factors as well as speculation.
OPEC is also planning to release a table detailing voluntary output cut quotas for its members and allies such as Russia in an effort to shore up prices, according to a letter by the cartel’s Secretary-General Mohammad Barkindo, which was seen by Reuters Thursday.
The drop in US inventory has however, offered some support to OPEC’s efforts to curb the volume of oil in the market.
US crude inventories reportedly fell by 497,000 barrels in the week to December 14, according to the US Energy Information Administration.
Analysts had predicted a smaller decrease of 2.4 million barrels.