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Nigeria’s harsh fiscal crises to last for long over dim prospects for global oil market

Nigeria’s fiscal crises caused by the oil price collapse and the economic slow-down caused by the Coronavirus pandemic will last for some time yet as forecasts for the price and demand for oil continues to swing downwards.

British Petroleum’s new chief executive says the coronavirus hit to crude consumption or demand will carry on even beyond the pandemic as the world settles down to a new normal for energy requirement.

Yesterday, analysts at the global bank Goldman Sachs said oil could remain at or below the current price of $30 a barrel for a long time to long. It means that in terms of production volumes and price, Nigeria will struggle to fund its budget for years to come.

OPEC said yesterday it expected 2020 global oil demand to shrink by 10 million barrels a day, worse than its previous contraction forecasts of 6.85 million barrels and it expects the second quarter to see the steepest fall in demand. Second quarter demand for oil has been estimated by ING to be no more than 16.77 million barrels, well below OPEC’s daily production levels.

The grim forecast means that Nigeria’s 1.9m barrels a day production target set in the revised medium-term document is overly ambitious, analysts say. Oil revenues are expected by the government to fall by a staggering 80% to N1.5trilliion this year from an initial estimate of over N5trn.

Bernard Looney, who took the top job at the UK energy major in February, told the FT that prior to the Covid-19 crisis, oil was already in stormy waters and that has now been exacerbated by the current global travel bans and lockdowns, slashing consumption by a third from pre-crisis levels of roughly 100m barrels a day.

“It’s not going to make oil more in demand. It’s gotten more likely [oil will] be less in demand,” Mr Looney said, noting that use of technology that enables remote working, cutting the need for travel, could persist. “I don’t think we know how this is going to play out. I certainly don’t know,” he said.

“Could it be peak oil? Possibly. Possibly. I would not write that off.” The oil industry is assessing how much of the slump in demand sparked by coronavirus may become permanent.

On Wednesday oil futures in New York dropped 1.9% after Energy Information Administration reported the lowest crude input in UD refineries since 2008, suggesting that demand recovery will be slower than had been thought.

Africa’s most populous country recorded its first confirmed coronavirus case in late February and last month the International Monetary Fund, IMF approved $3.4bn in emergency financial assistance for Nigeria.

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