Brent crude oil slides below $35 for first time since 2004

Oil continued its volatile start to 2016 with Brent crude falling below $35 a barrel for the first time in more than a decade, surpassing lows reached in December as a seemingly relentless rise in global production overshadowed all other concerns.

ICE February Brent traded as low as $34.62 a barrel — the lowest since early 2004, the Financial Times reports.

The US oil benchmark was also lower. Nymex February West Texas Intermediate dropped to $34.63 a barrel after industry data on Tuesday showed a further increase in stocks at Cushing, Oklahoma — the delivery point of the US crude benchmark.

Concern about bloated stocks levels and fears that the US could run out of storage plus the rift between Saudi Arabia and Iran are the reasons why several investment banks such as Goldman Sachs believe oil prices might trade as low as $20 a barrel.

It is particularly bad for Nigeria, a country where oil revenues mean so much and which has seen its economy reeling since last year, triggering a currency crisis.

Nigeria’s oil is floating on seas around the world for lack of takers and Nigerian oil firms are beginning to consider production shut in for lack of storage capacity.

A collapse in oil price and a debilitating currency crisis is leading analysts to predict a rating cut for Nigeria in a year when the global rating agencies are lining up more cuts than any year since the financial crisis.

According to Charles Robertson, global economist at RENCAP,  “We assume a downgrade for Nigeria because Moody’s has not altered Nigeria’s rating since 2012 and Fitch not since 2006. Oil prices then were either high or rising and the Central Bank had relatively high foreign exchange reserves.

“Today capital controls are required to manage the currency, and the official and unofficial rates are diverging in a style reminiscent of Argentina and Venezuela.”

In Nigeria, questions are already being asked about the price point at which oil production will no longer be profitable, all adding pressure on managers of the nation’s economy.

According to Central Bank of Nigeria (CBN) figures, the total revenue collection for the federation in year 2012 was $40,561,793,365.83.

That is the totality of the revenues from the NNPC, the Federal Inland Revenue Service (FIRS), the Directorate of Petroleum Resources (DPR) etc.

A year later in 2013, that sum had dwindled to $37,520,087,145.54, which can be rounded to $37.5 billion. By 2014, the collections had improved marginally as $38,630,800,832.85 (roughly $38.6 billion) was raked in. However, by the end of November 2015, only $14,887,315,845.29 (about $14.9 billion) had been realised – less than 40 percent of the earnings for previous years.

Emerging trends for 2016 point to an even more difficult year for Africa’s largest economy.

Neil Hume, Anjli Raval &  David Sheppard, in London