The Federal Executive Council had earlier this week proposed $38 per barrel as the oil benchmark price for the 2016 budget, down from $53 this year.
The Excess Crude Account, into which the country saves the difference between the market price of oil and the budget benchmark to provide a cushion when oil prices fall or extra cash is needed for spending on infrastructure, has been depleted in recent times as oil revenues plunged.
The account, which stood at about $4.11bn in October 2014, dropped to $2.45bn in December that year, down from about $3.11bn in November. The balance in the ECA was put at $2.1bn in July this year.
Senators on Wednesday disagreed among themselves on the $38 per barrel proposed by the Federal Executive Council as the oil benchmark price for the 2016 budget, which was contained in the Medium Term Expenditure Framework and Fiscal Strategy Paper forwarded to the upper chamber by President Muhammadu Buhari.
While some of the lawmakers called for an increase in the benchmark price, others supported the decision of the Federal Government to peg the benchmark at $38 per barrel.
Brent, against which most of the world’s oil, including Nigeria’s is priced, has fallen by more than 60 per cent in the past 18 months, putting pressure on oil-exporting countries.
The global benchmark fell below the $40-per-barrel mark on Tuesday for the first time in almost seven years due to oversupply. It later headed back above $40, at which it traded on Wednesday.
Commenting on the proposed $38 per barrel benchmark for the 2016 budget, the Head of Energy Research, Ecobank Capital, Mr. Dolapo Oni, in an emailed response to questions from our correspondent, said, “I think it is a fair price. The oil market is pretty volatile and reacting to the OPEC news currently.”
He said oil price could even go lower to $38 per barrel, but added that it would recover above $40 and potentially $50.
“We have forecasted an average of $46.33 per barrel next year because we see the potential for prices above $50 as well as prices in the $20-30 range. In my opinion, therefore, I think the benchmark is satisfactory,” Oni said.
Nigeria, like other countries that rely on oil revenues, has seen its finances badly hit by the decline in oil prices, with crude trading below the country’s 2015 budget benchmark price in recent months.
The steep decline in oil prices had in March forced the National Assembly to settle for $53 per barrel as the benchmark price for the 2015 budget, down from $65 proposed by the Executive, which had to adjust it twice, from $78 to $73, and later to $65.
Goldman Sachs, one of the most influential banks in commodity markets, recently said that oil could fall to as low as $20 per barrel amid fears that the world is running out of storage capacity.
The Chief Executive Officer, Total, Patrick Pouyanne, had on Monday said he did not expect pressure on oil prices after OPEC’s decision last Friday not to impose a ceiling on crude output and keep production at high levels.
“OPEC’s decision was expected by the market. We don’t anticipate a recovery in 2016 (for oil prices), because in 2016, the growth in capacity will be larger than the growth in demand…I am not very optimistic for 2016,” he told reporters in Qatar.
OPEC failed to agree on a new output quota on Friday, allowing member countries to continue pumping more than 31 million barrels per day of oil, further swelling a glut that has lowered prices.
The OPEC decision sent Brent into heavy fall on Monday, when it fell to $41 per barrel, the lowest level since March 2009.