How FG came about the $73 per barrel Benchmark Price!

We gave a report about the falling oil price, that led to FG using a benchmark price of $73 as against $79 for 2015 budget. The Federal Government affirmed that the price was not haphazardly fixed, but based on statistical analysis using Autoregressive Integrated Moving Average (ARIMA) model.

The new benchmark price is based on the findings of the 2015-2017 Medium Term Expenditure Framework (MTEF) and Fiscal Strategy Paper , which was published in September this year. It was stated in the paper, “We estimate the benchmark oil price to be $73.28pb based on the 15-year moving average, while the 10-year moving average gives a price of $92.34pb.”

The 15-year moving average captures the beginning of the commodity super cycle, and covers the boom and bust cycle of the period. It also smooths out short-term fluctuations and highlights longer term trends.