Oil markets have continued a bearish run as the anticipated truce, a meeting between OPEC and a ranking representative of the US oil industry will forge, has failed to materialise.
Last week, Ryan Sitton, a member of Texas Railroad Commission, the commission that represents Texas’ oil production, met with Mohammed Barkindo, OPEC Secretary-General to discuss areas of possible cooperation.
The duo had agreed that an international deal must be done to ensure economic stability as markets try to recover from the effect of Coronavirus pandemic. An elated Barkindo, invited Sitton to the cartel’s OPEC’s June meeting.
Sitton, one of three elected commissioners, who run the agency had proposed that drillers in Texas curb output by 10 percent and that a reciprocal response by OPEC will shore up prices. But Sitton’s proposal has now been rejected both by US regulators and drillers.
Oil markets continued the gloomy outlook with the price of global benchmark threatening to fall to $20.
However, prices reversed losses on Monday, jumping as much as 4 percent after the Federal Reserve pledged aggressive asset purchases to support markets. The move higher comes after U.S. West Texas Intermediate crude posted its worst week since 1991.
WTI rose 1 percent to trade at $22.86 per barrel. In a volatile session for the contract, prices were down 6 percent in early trading before rising as much as 4 percent following the announcement. International benchmark Brent crude traded 3 percent lower at $26.15 per barrel.
What it means for Nigeria
For countries like Nigeria, highly dependent on oil prices, the anticipated long-term bearish run for the oil market will continue to crimp revenue and roil the economy.
Last week, Nigeria’s external reserves fell below $36 billion, touching its lowest levels in 29 months. The reserve which shows the country’s ability to weather external shocks dropped to $35.9 billion from a $36.02 billion level on Tuesday, 17th March, according to Central bank’s data.
On Saturday the Central Bank said the naira will now change at N380 per dollar at the Investors and Exporters (I&E) forex window and raised official rate to N360/$1 to help Federal and State governments shore up revenue.
The government has also reviewed downwards the benchmark price of crude oil and cut 20 percent recurrent and capital expenditure of the budget to assuage fallen oil incomes.
Lower oil earnings will hurt national response to COVID-19 as a rash of new cases reveal the country’s poor preparedness to deal with a pandemic that has claimed thousands of lives.
Apart from depressed demand, the Saudi-Russia oil price war will increase a glut in the oil market and bloody the fight for higher market share among competing producers whose rebates may serve to worsen a dire situation.
Oil companies are already feeling the heat as many have cut expenses and are postponing investment decisions. Share prices have plummeted and operations in some quarters are being stymied as these companies try to comply with best practices in social distancing to help stop the spread.
Analysts say the Federal Government should be ramping efforts to reduce the cost of production of crude oil in Nigeria.
“The government should be assisting to reduce the cost of producing a barrel of crude oil and also generally incentivizing producing in Nigeria,” says Ayodele Oni, energy lawyer and partner at Bloomfield law firm.
Nigeria produces a barrel of oil for between $15 and $17 in onshore fields but costs could rise up to $30 a barrel in offshore fields due to the high cost of acquiring FPSOs.