Should the Federal Government revise the 2020 budget

Should the Federal Government revise the 2020 budget benchmark to $20 a barrel?

Nigeria should be mindful that demand does not necessarily translate to sales at the headline futures contract price. The market is still recovering from the super-contango it faced a month ago.

Three weeks ago, Mrs. Zainab Ahmed, the Nigerian Minister of Finance, Budget and National Planning, at a web conference on Citizens’ Dialogue Session, said the Federal Government was deliberating on revising the 2020 budget oil price benchmark to $20. 

She disclosed that this was a fair reflection of the oil price level while discussing Government’s Fiscal Policy Decisions on the fall in Oil Prices and the COVID-19 pandemic.

In my last article, I noted several elements behind the resurgence in oil prices in the last few weeks. 

The factors range from an increase in demand from China to production shut-ins from OPEC+ nations, a reduction in the number of active rigs to the lowest level seen in 11 years by U.S. drillers which trimmed output further, and easing of lock-downs globally.

In the early hours of Monday morning at the Asian session, Brent traded at $35.00, a dip from Thursday’s high at $36.98. 

Very few oil traders and energy analysts envisaged prices to be at these levels, considering the unprecedented collapse of prices on the 20^th of April, 2020 where oil prices traded at negative prices. 

Recalling that period, everyone who had sparse knowledge on the fundamentals of oil gave their outlooks and predicted that it was the end of oil. 

It is similar to the effect “The Last Dance” has now, with everyone giving their two cents on Michael Jordan’s career, despite never watching a complete game he played.

So, could it be said that the Minister adjusting the benchmark to $20 is a little bit low, or would $30 be a fair benchmark given the recent improvements in the oil sector? 

The answer depends really on how quick events get back to normal, or the “new normal” as the new cliché goes these days, or if there would be a second wave of infections because of premature easing of lock-downs and poor compliance in social distancing.