The National Assembly is currently debating the $38 benchmark price for crude put in place by the Federal Government for the 2016 Budget. Just as the debate is raging the price of crude is taking a dive and fell to as low as $32 this week. Contrary to most expectations, the middle east diplomatic stand off between heavy weights Saudi Arabia and Iran isn’t helping. The world is still getting battered with a crude oil glut and oil-producing countries struggling with an economic crisis are offering crude at cut throat prices all in the bid to stay afloat. This has made the chat above very important.
The Organization of Petroleum Exporting Countries which Nigeria belongs to, have a crude oil basket of its own which is different from the widely used Brent Crude. OPEC currently pumps about 41% of the world’s oil making it a major factor in the determining the price of crude. Despite this influence, oil also has several grades and each grade has its own price. To therefore determine a uniform price for its members, OPEC regularly publishes an oil price basket showing the average price of crude among its member countries.
OPEC Basket composition
Saharan Blend (Algeria), Girassol (Angola), Oriente (Ecuador), Minas (Indonesia), Iran Heavy (Islamic Republic of Iran), Basra Light (Iraq), Kuwait Export (Kuwait), Es Sider (Libya), Bonny Light (Nigeria), Qatar Marine (Qatar), Arab Light (Saudi Arabia), Murban (UAE) and Merey (Venezuela).
Looking at the chart, it’s clear OPEC countries are at an average selling crude at a price much below the Brent. Even though Nigeria’s Bonny Light trades at a slight premium to the Brent, the drop in price in the oil basket could suggest a stiffer competition for Nigeria’s crude. India is currently Nigeria’s largest importer of crude but we have recently faced stiff competition from other OPEC and non-OPEC members. As the price of crude continues to dip the less likely it is for us to meet our benchmark price of $38.