The declining global oil price last week could destroy the Federal Government’s economic forecasts for 2019 and affect the medium-term expenditure framework (MTEF) if the trend does not reverse soon. Data from the Organization of Petroleum Exporting Countries (OPEC) show that prices are still trending lower yesterday, reaching a new low of $ 59.96 a barrel yesterday. The new price is now below the federal government’s budgeted benchmark of $ 60 for the 2019 budget.
Therefore, the budget already submitted to the National Assembly is already pending before consideration and discussion of a review. The first casualty is expected to be the nation’s excessive crude oil account, ECA, which exceeded $ 2.09 billion on October 16, 2018, according to the National Economic Council (NEC). As a result, investments are the main thrust of the 2019 budget, and the MTEF and the Economic Reform and Growth Plan (ERGP) of the current federal government could be subject to a downward revision.
Why the price of oil is on the downtrend.
It is said that several factors are involved. In particular, there are signs that supply flooding is building up. The slate fracking industry is generating more supplies as Iranian production is still coming to market thanks to US sanctions waivers. OPEC, the producers’ cartel, is likely to vote when it comes together next month. However, this expectation is not a great relief at the moment.
The oil price will also be affected by the general fall in asset prices in the autumn and is worried that the global economy will slow down in 2019 to outpace the OPEC production cut, although provisional ambitions by traders have been curbed for the time being. The global oil and gas sector is said to have lost some $ 1 trillion in value over a 40-day period since October, after crude oil prices fell by around $ 20 a barrel. US-listed companies in the Standard and Poor’s 500 countries have lost $ 240 billion. ExxonMobil, for example lost $ 35 billion in value.