Global oil prices are in for a tumble this week after Iran said it was ready to add half a million barrels a day to crude exports after international sanctions were lifted this weekend.
The prospect of Iran flooding the market with more crude already dented prices last week, pushing Brent crude below $30 a barrel, to $29.20 by Sunday.
Iran’s return to the international oil market may worsen the global oil glut as the country looks to ramp up its crude oil exports with estimated 500,000 barrels per day.
Iran’s President Hassan Rouhani, hailed a “glorious victory” as his country relished reconnecting to the global economy following the formal announcement, late on Saturday, that sanctions were ending thanks to moves by Tehran to scale back its nuclear programme.
Echoing Friday’s sell-off on commodity and global stock markets, shares in the Middle East tumbled yesterday. Saudi Arabia’s Tadawul index was down more than 6% as the latest drop in crude prices intensified worries over the economic outlook for the major oil producer. In Egypt, shares extended last week’s losses on broader worries over emerging markets and the EGX 30 index was down 3%.
The lifting of sanctions includes an end to an EU embargo on imports of Iranian oil and Sunday the country confirmed it was geared up to raise exports.
“With consideration to global market conditions and the surplus that exists, Iran is ready to raise its crude oil exports by 500,000 barrels a day,” the deputy oil minister, Amir Hossein Zamaninia, was quoted as saying by the Shana news agency.
Oil prices have almost halved in the last six months amid worries about oversupply and softening demand on the back of a weaker global economic outlook and a downturn in China, the world’s biggest energy user.
Global crude production outpaced demand following a boom in U.S. shale oil and after a decision by the Organization of the Petroleum Exporting Countries (OPEC) last year not to cut production in order to defend market share.
Most market analysts expect a global glut to worsen this year due to soaring production in North America, Saudi Arabia and Russia.
Oil prices briefly dipped below $30 per barrel this week as the depressed market continues.
Market watchers seemed to be competing with each other to see who could publish the lowest prediction for oil prices, with Standard Chartered raising the possibility of $10 oil. It wasn’t too long ago that sub-$30 oil sounded ridiculous, so nobody can predict where the true bottom will be. The only thing that everyone knows is that today’s prices are unsustainably low since a large portion of global oil production is not profitable right now. The big question is when the rock bottom price will be hit.
With the ongoing crash in oil markets, Wood Mackenzie’s estimated that $380 billion worth of oil projects had been cancelled since 2014. The totality of cancellations will result in nearly three million barrels of oil production that will not come online over the next decade.
2016 budget faces fresh threat
Meanwhile, the lifting of sanctions on Iran by the US and other world powers has put Nigeria’s 2016 budget under fresh threat following the now unrealistic crude oil benchmark of $38 per barrel.
The income of the country had fallen by about 70 per cent as a result of crude oil price crash from a high of over $114 per barrel in mid-2014 to below $30 per barrel. With further fall expected, Nigeria would have to revise its oil benchmark much lower, resulting in a higher budget deficit.
With deficit budget anchored on borrowing for implementation, a higher budget also spells higher borrowing. The situation now looks more dire with the lifting sanctions on Iran.
The sanctions put in place in 2012 were lifted after Iran met the terms with six world powers to stop its allegedly weaponised nuclear programme.
The irony, however, is that what is clearly Iran’s joy is Nigeria’s woe, which the current government will now learn to navigate.
Nigeria’s 2016 budget is based on a crude oil benchmark price of $38 per barrel and a production estimate of 2.2 million barrels per day for 2016.
The budget deficit is expected to be financed by a combination of domestic borrowing of N984 billion, and foreign borrowing of N900 billion – totalling N1.84 trillion, a figure that may now double if a lower oil benchmark is used.
“Today marks the start of a safer world,” said U.S. Secretary of State, John Kerry. “We understand this marker alone will not wipe away all the concerns the world has rightly expressed about Iran’s policies in the region. But we also know there isn’t a challenge in the entire region that wouldn’t become much more complicated, much worse, if Iran had a nuclear weapon,” he added.
Iran has hailed the lifting of the sanction as a vindication of its power and influence in the world.
With the lifting of the sanctions, Iran, which has the fourth largest oil reserve in the world (160 billion barrels) is expected to flood the international oil market with more oil which could worsen the ongoing glut that has reduced the price of crude from $105 per barrel to about $30 per barrel.
Also, the middle-eastern country recently announced that it is capable of producing oil at $1 per barrel; which means it can afford to sell its oil below the official international rate if it pleases.
The re-entry of Iran into the international oil trade could also see India, Nigeria’s top buyer of crude (India currently imports 750,000 barrels per day from Nigeria), look towards neighbouring Iran for its oil needs, further dipping Nigeria’s revenue stream. India buys about a third of Nigeria’s daily production while the US currently buys none.
Last year, US financial group, Goldman Sach, predicted that the present glut (without Iran’s supply) in the market could drive prices as low as $20 per barrel. This is an indication of a possible economic problem for Nigeria as the 2016 budget was benchmarked on $38 per barrel. This could possibly increase the budget deficit of $11 billion.
A further drop in Nigeria’s oil export earnings is likely to drop the value of the naira below its present N305 to a dollar in the black market, a 43-year record.
Reacting to the development, former interior minister and chairman, Integrated Oil and Gas Ltd, Capt. Emmanuel Iheanacho, in his reaction, called on OPEC to call an emergency meeting and discuss production cut as a measure to stabilise oil price.
Iheanacho said with the lifting of the ban, Iran will begin to trade on the international market and further saturate the market.
“OPEC should take stock of the situation and embark on cut back of production because with Iran pump more oil into the market will lead to more depression” he advised.
The former minister also advised government to consider rapid policy change to create stimulus in the economy.
“What I expect we should begin to do is to encourage local processing of the crude and feed the industries to boost local production and create jobs and at the same time export finished refined petroleum products,” he suggested.
In his reaction, Chief Okey Okoye, a chartered accountant and managing consultant of K-Point Ltd, corroborated the position of Iheanacho.
Okoye said, “We need to begin to add value to our crude by processing it locally. By-products from the crude oil can support our industries and I think it is time we began to consider seriously the diversification of the economy.”
He said the industrial sector and mining could be resuscitated alongside other ailing sectors as a way of boosting the economy.
In his reaction, Prince Edward Fatona, managing director of Niger Pacific, said: “It is about time we really act on diversification from crude oil to agriculture and explore other mineral resources that abound in the country.”
According to him, oil prices have fallen by about 70 per cent in the past 18 months as supply has outstripped demand. The demand for oil from China has fallen as its economic growth has slowed.
Meanwhile supply has increased, partly due to the rise of US shale oil. In addition, the world’s largest exporter of oil, Saudi Arabia, has refused to cut production – something it has done previously to support oil prices.
Analysts estimate that about one million barrels of oil are being produced above demand every day and pointed out that oil exporting nations that rely on a higher oil price to break even are suffering the most, such as Russia, Nigeria and Venezuela.
As oil dived close to $30 per barrel last week on global oversupply, Nigeria called for an emergency meeting to address the problem.
NASS to begin debate on PMB’s budget amendment request tomorrow
Both chambers of the National Assembly will tomorrow debate a letter written to them by President Muhammadu Buhari informing their respective leaderships of his intention to withdraw the 2016 Budget and amend the inherent “errors” in the document.
The formal request followed controversy over the alleged secret tampering with the original document as presented by Buhari. Consequently, the controversy over the budget raged all through last week.
The president had presented the 2016 Appropriation Bill to a joint sitting of the National Assembly on Tuesday, December 22, 2016, for their scrutiny and passage into law.
But the fiscal document became a subject of controversy when the lawmakers resumed from their three-week vacation on Tuesday, January 12, 2016 to begin work on the budget only to discover that the details were not available, hence allegations of missing budget and counter-allegations between the Executive and the Upper Chamber of the National Assembly.
Before leaving for United Arab Emirates for a summit at the weekend, Buhari had, in two separate letters, officially informed the Senate President Bukola Saraki, and the Speaker of the House of Representatives, Hon. Yakubu Dogara, of his intention to withdraw the document.
A reliable source confirmed last night that the Speaker’s office was in possession of Buhari’s letter seeking to withdraw the budget but he would not disclose the specifics in the presidential communication.
“As a custom, whenever the President writes the House through the Speaker, nobody will discuss the content except on the floor of the House. So, you wait till Tuesday to know the details,” the source said.
Sources had insisted that the latest development was informed by President Buhari’s discovery after presenting the budget to the National Assembly that some of the figures earmarked for operations in the Presidency and the State House were being publicly criticized as outrageous and higher than those of past administrations.
Also, the Senior Special Assistant to President Buhari on National Assembly Matters (Senate), Senator Ita Enang confirmed Sunday that the President had sent a communication to the Senate regarding the 2016 budget.
Enang, in a text message he sent to journalists last night, did not disclose the details of the communication, but stated that the communication would be read on the floor of the Senate tomorrow (Tuesday).
The Senate President Bukola Saraki last week alerted the Presidency of a circulating fake version of the 2016 budget, pointing fingers at Senator Enang.
Saraki orders review of NASS security
Senate President Bukola Saraki has ordered a review of all security arrangements in the National Assembly to keep the legislative citadel conversant with the current challenges in the country, especially now that the Boko Haram insurgency has receded.
A statement by his Special Adviser on Security, Major General Saleh Maina (rtd), noted that the review of the security around the complex “is part of the periodic plans to ensure better protection of life and property as well as improve the existing arrangement”.
Maina said in carrying out the directive of the Senate President who is also the Chairman of the National Assembly, “the heads of all security agencies present in the Complex and other officials whose portfolio has to do with security have met at different times to devise a common and water-tight plan.
“Following the meetings, it has been decided that, henceforth, it is compulsory for all legislators, staff and visitors to the National Assembly to wear identity tags,” Maina said, adding that there would be no loitering within and around the National Assembly by visitors and staff.
Gen. Maina further said all vehicles coming to the National Assembly must be parked at the appropriate designated parking lots.
Noting that there shall be proper screening of personnel coming into the National Assembly as well as the scanning of their hand bags and luggage, the special adviser called on the security officials at the National Assembly to be polite and firm to all in the course of carrying out their duties.
Maina also said that there would be training and retraining of security personnel and staff of the National Assembly as well as general maintenance and upgrading of equipment towards ensuring quick responses, communication and mobility in case of any threats in any location within the National Assembly.
He further explained that the training of the concerned staff at the National Assembly will further ensure proper collaboration and coordination among all security agencies working within the huge complex and that, henceforth, there will be a periodic meeting of all concerned with the security of the institution.
To this effect, he said, a general awareness campaign will be held for all those that have businesses within the National Assembly Complex to update them on the new development.
-Leadership
