NIGERIA has been given a brief economic lifeline after crude oil prices recently rallied to over $50 a barrel due to a combination of news that a coronavirus vaccine will be soon be available and a tanker explosion in Saudi Arabia which created supply worries.
Following the outbreak of the global pandemic, industrial production collapsed worldwide as economies shut down and commerce ground to a halt. With nobody buying crude oil, stockpiles have grown in producing countries like Nigeria, leading to an unprecedented crash in prices to the point whereby it became pointless producing crude at one point.
Given that over 90% of federal government revenue comes from the sale of crude oil, Nigeria has been particularly vulnerable to the collapse in global prices. Unable to meet its daily sales target of 2.1m barrels a day, Nigeria resorted to borrowing to fund its 2020 budget dramatically, increasing the nation’s debt profile.
Nigeria’s 2020 budget was predicated in the country selling 2.1m barrels of oil a day at a price of $57 but with prices remaining at around $40 of late, the government has had to borrow up to $10bn from the World Bank, International Monetary Fund and African Development Bank to fund its budget. Today, however, Nigeria got some respite as crude oil prices rose above $50 a barrel worldwide.
Brent crude futures prices for February rose by 38¢ to $50.35 a barrel amid supply jitters after a shipping firm said its oil tanker exploded after being hit by an external source while discharging at Jeddah port in Saudi Arabia. Also, news, that Pfizer’s vaccine will soon be widely available to treat coronavirus, helped buoy the market.
Nigeria’s Bonny Light Crude is identical to the low sulphur Brent Light Crude and over the last six weeks, prices have remained stable. In the US for instance, plans are already underway to start administering the Covid-19 vaccine, which has raised hopes that restrictions could end soon and lift demand in the world’s largest oil consumer.
An extension of Brexit talks among European powers and the UK also buoyed financial markets earlier today. Although most European countries continued in lockdown mode to curb the spread of Covid-19, which has reduced fuel demand it is believed that the European Union reaching a deal with the UK on Brexit could allay consumption fears.