NIGERIA is facing a severe cash crunch as the coronavirus epidemic sweeping the glob has led to not only a collapse in crude oil demand but has also forced prices down to a six year low of $33 a barrel.
As a result of the spread of the virus, Chinese output has been severely affected, which in turn has had a domino effect on global industrial production. With supply far outstripping demand, this has led to a collapse in crude oil prices, with Brent Crude, a grade identical to Nigeria’s Light Bonny Crude falling from $45.72 per barrel yesterday to $33.45 a barrel today.
This is the lowest global crude oil prices have been since February 12, 2016 and is exacerbated by a price war between Russia and Saudi Arabia. One-time allies, the two major producers are locked in a battle for dominance, with traders now bracing themselves for Saudi Arabia to flood the market with crude in a bid to recapture market share.
Last Friday, the negotiations between the Organisation of Petroleum Exporting Countries (Opec) and its partners broke down. Russia, the leader of the 10 allies, adamantly refused to go along with a plan for deeper crude production cuts to tackle the coronavirus’ impact on global oil demand.
On Thursday, Opec had revealed a plan under which it would slash its production quotas by an additional 1m barrels per day for the rest of the year, contingent on Russia and nine other non-Opec allies agreeing to shrink theirs by 500,000 barrels per day. However, Russia has refused to play along and the matter has had a very bearish effect on the market.
Saudi Arabia escalated the situation further over the weekend, slashing its April official selling prices by $6 to $8 a barrel in a bid to retake market share and heap pressure on Russia. If Russia responds with a similar cut, prices could enter into freefall.
Nigeria is particularly vulnerable to the volatility of the global crude oil market as petroleum accounts for about 95% of government earnings. Also, Nigeria’s 2020 budget is predicated on the nation selling 2m barrels of oil a day at a price of $60.