Oil revenues from producing states make up 41% of N418.8bn shared by FG in May

Nine oil producing states, including Lagos, contributed N174.99 billion (or 41 percent) in oil revenues to the N418.82 billion shared by the three tiers of government in the month of May.

The 41 percent contribution is aside their other contribution in form of value added taxes and personal income taxes collected from oil and non-oil related activities in their states.

Lagos which is newly inducted into the group of oil producing states contributed the least amount, with a contribution of N841.02 million, while Akwa Ibom which has contributed the greater portion of oil revenue to the three tiers of government in the past few years, contributed, N53 billion.

Other major contributors include Rivers, Bayelsa and Delta, which contributed N35.72 billion, N36.81 billion and N32.28 billion respectively.

Nigeria’s 36 states received N117.85 billion drawn from gross statutory allocation, N15.48 billion from excess PPT Savings Account, N4.95 billion from exchange gain and gross value added tax (VAT) allocation.

The Federal and the local governments received N148.30 billion and N86.97 billion respectively with the nine oil producing states received an additional N22.75 billion as 13 percent derivation.

The fact that crude oil accounts for 41 percent of what was distributed draws further attention to the sustainability of government budgets and spending plans.

“The slight drop in the average price of crude oil from $55.38 to $55.18 per barrel and a decrease in export volume by 1.023 million barrels, reduced oil revenue by about $57.12 million,” Mahmoud Isa-Dutse, Permanent Secretary, Ministry of Finance said where he presented the revenue data.

Crude oil production suffered due to leakages, sabotage, shut-ins and shut-downs at terminals for maintenance and the force majeure declared at Forcados terminal since February, 2016 subsisted.

On Monday 26 June, crude oil prices edged higher after hitting a ten-month low late last week, with analysts questioning the sustainability of the rise.

There are few indications that oil stockpiles may diminish significantly in the next few months as US refineries come full steam, thus driving up oil price. The International Energy Agency (IEA) forecasts that OECD commercial stocks will still stand at 2,989 million barrels at the end of 2017, almost 230 million barrels higher than the year-end average for 2012-2016.

The agency also predicts OECD stocks will rise to 3,020 million barrels at the end of 2018, which would be almost 260 million barrels over the 2012-2016 average.
The forecasts assume OPEC’s output agreement is extended beyond March 2018 but compliance deteriorates.

Bearish oil prices persist as OPEC focuses on surging Libyan, Nigerian output

Energy analyst, John Kemp says “if these forecasts prove correct, OPEC will only have made limited progress toward its goal of rebalancing the market even by the end of 2018.

The recent drop in oil prices has been concentrated in near-term futures contracts. Brent for delivery in October 2017 has fallen by $9.50 since May 23, while Brent for delivery in December 2018 is down by only $5.50 per barrel.

“Sharp falls in the cost of crude for delivery in the near future provide an enhanced incentive to buy and store excess oil, helping the market carry a higher level of inventories than anticipated before.

Near-term price declines also send a strong, urgent signal to US shale producers to curb their drilling to avert an even bigger buildup of inventories in future,” Kemp says.

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In the 2017 budget, the presidency set the crude oil benchmark at 2.2 million barrels per day at a price of $42.5 per barrel, before the Senate pushed the benchmark to $44.5 per barrel. Brent Crude features fell from $47.06 on Monday 19 June to settle at $46.91 in the wee hours of Tuesday 20, June almost hitting the benchmark of the Senate and the Presidency.

Analysts are of the opinion that oil prices may fall below the current price as OPEC continues its tug-of-war struggles with the U.S. shale producers and rising output from Nigeria and war-torn Libya. This could adversely affect the amount allotted to the three tiers of government and their ability not just to pay salaries but also to meet their budgetary allocation.