A day after Nigerian equities sank to a four-year low and the local currency weakened considerably, oil has again slumped to $34 a barrel inflicting more pressure on stocks and the local currency when the market opens Thursday.
As the global markets came under renewed by threats of Saudi Arabia and its Gulf allies to up supplies, Brent crude for May delivery fell 4.1% to $34.32 a barrel on the London-based ICE Futures Europe exchange as of 12:41 p.m. in Singapore with Nigeria increasingly hapless and its economy floundering in an oil price war where it is a mere onlooker.
Saudi Arabia said it will boost capacity to an unprecedented 13 million barrels a day, doubling down on Tuesday’s pledge of extra output while close ally the U.A.E., then promised to push more crude to customers than it normally produces.
Abu Dhabi National Oil Co. will provide customers with 4 million barrels a day next month, it said. The country’s output capacity is 3.5 million barrels a day, according to the International Energy Agency.
Saudi Arabia and its allies are also slashing prices for their oil in an attempt to push out Russian crude and secure market share. Iraq and Kuwait have followed Aramco in cutting rates to customers all over the world.
Crude has lost around a quarter of its value this week as the deteriorating demand outlook due to the virus, which the World Health Organization has now deemed a pandemic, coincides with a price war between Saudi Arabia and Russia.
“We are now staring at the whole world going into a lockdown,” said Vandana Hari, founder of Vanda Insights in Singapore. “Oil demand can be expected to crash through the floor and all previous projections on oil consumption are now out the door.”
As demand craters, Saudi Arabia is unleashing a wave of crude on Europe, traditionally the backyard for Russian sales, pledging to supply refineries with as much as triple their usual intake from the kingdom. Russia’s low production costs, flexible tax system and free-floating ruble means its producers are able to respond, analysts from Bank of America Corp. to Raiffeisenbank said.
Analysts at Bloomberg now say the Nigerian central bank will be unable to maintain the naira’s value for much longer as a slump in oil prices drains foreign reserves.
Seven of 16 respondents expect the currency to be devalued in the third quarter, while four forecast a downward adjustment as early as the second quarter. Another three foresee a devaluation in the fourth quarter and two next year.
Oil prices collapsed this week after the world’s biggest exporters failed to agree on how to respond to a drop in demand as global economic growth slows because of the spreading coronavirus. Nigeria is Africa’s top crude producer.
Since the virus first appeared in China late last year, the naira has weakened 1.3% on the spot market to 366.63 per U.S. dollar. The currency’s decline picked up pace in February, when reserves fell more than 4.5% to $36.1 billion.
Nigerian central bank spokesman Isaac Okorafor declined to comment on the survey. Nigerian presidency spokesmen Femi Adesina and Garba Shehu didn’t respond to emailed requests for comment and neither answered calls to their mobile.
