BY December 31, 2019, Brent crude averaged $60 per barrel; members of the Organisation of Petroleum Exporting Countries with allies (OPEC+) were on 2.1 million barrels per day (mbpd) cut to help steady prices.
The arrangement was in place until March 2020 when the first OPEC meeting helds.
December 2019, the first case of coronavirus case was reported in Wuhan Province, China. The virus spread to other countries causing a global shutdown, and as economies crash, so do oil prices.
At the March 2020 meeting of OPEC+, the agenda was to extend the cut but there was no deal. It led to price wars between Russia and Saudi Arabia and further impacted the crude oil prices negatively as prices went as low as $20 per barrel.
Both countries increased production and this resulted in over-supply of crude oil in the international market with lower demand.
However, because lower crude price below $30 per barrel will affect Shale producers in the United States, President Donald Trump intervened and tweeted that he had had phone conversation with both Saudi Arabia and Russian leaders and suddenly crude prices jumped above $30 per barrel.
Nigeria was hard hit by the low oil price because the 2020 budget crude price benchmark was $57 per barrel. As crude prices drop, government’s revenue declines, hence, the need for a review of 2020 budget.
Nigeria is also having difficulty in finding buyers for its cargoes as many April cargoes are yet to get buyers. During this global lockdowns, many countries are not importing commodity except medical and other essential items. India stopped export of drugs, especially, hydroxychloroquine, to focus on using them to treat its citizens.
The Minister of Finance, Hajia Zainab Ahmed said the government is proposing to cut revenue from crude oil exports from N2.64trillion to N254.2 billion and reduce crude oil benchmark to $30 per barrel as against the $57 per barrel in the budget.
Besides, COVID-19 pandemic may have exposed the current reality to Nigeria’s policy makers on the need to block leakages. This is because Nigeria has used the opportunity of lower crude oil prices to announce removal of fuel subsidy on premium motor spirit (PMS) otherwise called petrol.
The Group Managing Director, Nigerian National Petroleum Corporation (NNPC), Mallam Mele Kyari, announced last week that fuel subsidy is gone forever. According to him “There is no fuel subsidy anymore in Nigeria. It is zero subsidy forever. There would be no resort to either fuel subsidy or under-recovery of any nature. NNPC will play in the petroleum marketplace, just like another marketer in the space. But we will be there for the country to sustain the security of supply at market price.”
The implication is that money for fuel subsidy would be free for other infrastructural development. It is an opportunity for Nigeria to wrap up production, shore up its reserve on a low price regime and offload when prices go up.
Meanwhile, following the recent OPEC+ meeting to curtail production, Nigeria’s Minister of State for Petroleum Resources, Chief Timipre Sylva, announced that Nigeria has joined its other OPEC+ counterparts to bring into effect the agreement to cut 9.7 million barrels of supply following the alignment of Mexico.
According to the minister, the intervention of the United States of America resulted in Mexico agreeing to a cut of 100,000 bpd and to be complemented by an additional 300,000 bpd by US Producers.
“This will enable the rebalancing of the oil markets and the expected rebound of prices by $15 per barrel in the short term. This also promises an appropriate balancing of Nigeria’s 2020 budget that has been rebased at $30 per barrel.
“As agreed, Nigeria will join OPEC+ to cut supply by 9.7 million barrels per day between May and June 2020, eight million barrels per day between July and December 2020 and six million barrels per day from January 2021 to April 2022, respectively.
“Based on reference production of Nigeria of October 2018 of 1.829 million barrels per day of dry crude oil, Nigeria will now be producing 1.412 million barrels per day, 1.495 million barrels per day and 1.579 million barrels per day respectively for the corresponding periods in the agreement.
“This is in addition to condensate production of between 360,000 and 460,000 bpd of which is exempt from OPEC curtailment,” the minister said.
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