Ayodele Aminu And Chika Amanze-Nwachuku With Agency Report
13 May 2009
Lagos — Crude oil prices yesterday rose to more than $60 a barrel, their highest level in six months, on hopes that the world economy would soon bounce back and demand for oil may recover.
But Nigeria is in early talks with the World Bank to secure a loan to help finance its budget deficit caused by the crude oil crisis, Finance Minister Mansur Muhtar has said.
According to a report on BBC website, US crude rose as high as $60.08 a barrel, while London Brent crude rose to $58.64.
The price of US crude, the report said, is now up by about 80 per cent from a January low of $32.70 a barrel, but is well below the record high above $147 hit in July last year.
Oil had risen in response to a global rebound in stocks. Weakness in the dollar had also spurred the oil price, which tends to rise when the dollar falls. The dollar hit a four-month low against a basket of currencies yesterday.
"The feeling is we've seen the worst of it, and the only way now is up," said an energy analyst with Fuel First Consulting in Sydney, Gerard Rigby.
The recent stock market rally has, however, sparked hopes that the world economy is recovering and thus investors are betting that demand for oil may soon recover.
Crude oil prices hit new highs of $52.25 a barrel on March 9, after a decision by the Federal Reserve to spend billions snapping up US bonds sent the dollar tumbling.
Oil is priced in dollars and when the US currency weakens, it essentially makes crude cheaper.
The deepening global recession, which eroded world oil demand, had left oil prices to around $40 per barrel in the first three months of this year. To help revive prices, OPEC, which pumps a third of the world's oil, reduced output by 4.2 million barrels per day (bpd) since September last year.
However, at its March meeting in Vienna, Austria, the 12-member group agreed to keep production unchanged, but urged its members to fully implement the output reductions announced late last year in order to stabilise the market. The group said it would continue to monitor market developments, to determine its next line of action.
Nigeria and other oil-producing nations had expressed concern over the fate of their economies following the continuous decline in oil prices, which plunged to an all time low of $32 per barrel late last year.
Nigeria's initial 2009 budget proposal was based on projected oil production of 2.3 million barrels per day at a benchmark price of $62.5. But the downward swing in the price of oil prompted government to reduce the oil benchmark for the 2009 budget to $45 per barrel, well below the $59 used in 2008.
Meanwhile, Nigeria's talks are still "exploratory" and there has been no discussion of amounts yet, Muhtar told Bloomberg news in Dakar, Senegal, on Monday.
The borrowing must be on "concessional terms" to comply with the country's policy to keep debt service costs low, he added.
Revenue from oil, which accounts for 95 per cent of government receipts, has slumped after crude prices dropped 58 per cent since the beginning of July last year.
Nigeria abandoned a plan last year to sell a global bond of $500 million as international credit markets seized up.
Nigeria is now seeking to withdraw $200 million it contributed to the African Development Bank (ADB) to help plug its funding gap.
"There are continued challenges ahead," Muhtar said. "We have to navigate through these difficulties and look at various ways to generate additional revenues, plug leakages, ensure greater efficiency in spending, and looking forward, how we can diversify our economy."
The finance minister said he would also hold talks with officials from the ADB in Dakar this week during the lender's annual meeting.
On March 24, Muhtar forecast that the budget deficit would reach 3.02 per cent of gross domestic product this year.
Nigeria's external debt fell to $3.5 billion in 2006 from $36 billion in 2004 after it paid off arrears and the Paris Club of creditor nations wrote off most of its loans.
The Nigerian economy will probably expand between 5 per cent and 6 per cent this year, Muhtar said, down from a forecast of 8.9 per cent estimated by President Umaru Musa Yar'Adua on December 2.
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