Search This Blog

Sunday, January 27, 2013

NIGERIA - Oil - Excess Crude Account

Definition of 'Excess Crude Account'

A Nigerian government account used to save oil revenues above a base amount derived from a defined benchmark price. The Excess Crude Account was established in 2004, and its objective is primarily to protect planned budgets against shortfalls due to volatile crude oil prices. By delinking government expenditures from oil revenues, the Excess Crude Account aims to insulate the Nigerian economy from external shocks. 

Investopedia explains 'Excess Crude Account'
Surging crude oil prices led to the Excess Crude Account increasing almost four-fold, from $5.1 billion in 2005 to over $20 billion by November 2008, accounting for more than one-third of Nigeria's external reserves at that time. By June 2010, the account had fallen to less than $4 billion due to budget deficits at all levels of government in Nigeria and the steep drop in oil prices. In 2010, Nigeria's National Economic Council approved a plan to replace the Excess Crude Account with a national sovereign wealth fund.


For the budget period 2013 the oil price has been fixed at USD 75.--. This means that any USD achieved for oil sales above USD 75.-- are stowed away in the Excess Crude Account run in USD in an account in the United States of America.

Currently most of Nigerias Foreign Exchange reserves 
held abroad are denominated in USD and are in the Excess Crude Account. (95% of Nigerian's USD 95 Billion are derived from Petrol and Petrol Derivates; Imports of roughly USD 60 Billion leave a positive trade balance of USD 35 Billion)

In fact nobody knows why Nigeria is labelling Excess Crude account part of its Foreign Exchange Reserves. This simply makes no sense.

copyright thomas ramseyer