What appears a blessing to the federal government, may turn out to be a burden of consumers of petrol, analysts have said.
As at close of last week Brent crude price has risen to $66.28/b, about 65 per cent of 2021 budget benchmark.
This is expected to boost actual revenue performance from the recovery of excess crude account.
On the other hand, this also is expected to increase the misery of users of petrol as a result of expected increase in landing cost.
“With weak revenue performance, the FG lacks the capacity to take on subsidies. From estimate, the landing cost at current oil price level and using an exchange rate of N379/$1 is north of N180/liter, 9.1 per cent above the Nigerian National Petroleum Corporation (NNPC) pump price, analysts at Afrinvest said in their weekly report..
“If oil prices continue to trend higher, we expect the price modulation template of the PPPRA to reflect higher landing costs. This implies that Nigerians would pay higher pump price with major inflationary pressure in the near-term, the analysts said.
For the Nigerian government, actual revenue performance in Q1:2021 is expected to receive a boost from the recovery in oil prices. So far in Q1, oil prices have averaged $58.5/b, ($66.28/b as close of last week) about 65 per cent above the 2021 budget benchmark of $40.0/b, implying inflows into the excess crude account. However, the coast is unclear given the fragile rebalancing of the oil market on lower demand outlook and measures to contain the virus weigh heavily on recovery prospects. Based on past actual budget performance, shocks to oil prices would significantly drag revenue performance in 2021, resulting in wider deficits.
Since the start of 2021, oil prices continue to show momentum, up 27.5 per cent year-to-date after gaining 7.9 per cent and 18.2 per cent in January and February (MTD) respectively.