The price of Brent crude, the international benchmark, tumbled on Wednesday to the lowest level in 17 years as global markets continued to respond to the price war between Saudi Arabia and Russia amid the spread of the coronavirus pandemic.
Brent, against which Nigeria’s crude is priced, fell by $3.84 to $24.89 per barrel as of 7.05 pm Nigerian time on Wednesday, its lowest level since late 2002.
With the oil price now more than 50 per cent lower than Nigeria’s budget benchmark, the country’s oil-dependent economy has come under more pressure.
The 2020 budget, which was signed by the President, Major General Muhammadu Buhari (retd.), in December, was based on oil production of 2.18 million barrels per day with an oil price benchmark of $57 per barrel.
The Federal Government was looking to generate N2.64tn oil revenue, representing 32.34 per cent of expected total revenue for this year, with non-oil revenue projection being N1.80tn.
The price war between Saudi Arabia, the de facto leader of the Organisation of Petroleum Exporting Countries, and Russia after the collapse of talks on coordinated output cuts is increasing pressure on the market, according to Reuters.
Travel and social lockdowns aimed at countering the coronavirus were said to have raised prospect of the steepest ever annual fall in oil demand.
Investment banks and consultancies have been making heavy cuts to their demand forecasts as a growing number of the world’s largest cities and economies restrict movement.
“The oil demand collapse from the spreading coronavirus looks increasingly sharp,” Goldman Sachs said in a note, forecasting a fall in Brent prices to as low as $20 in the second quarter, a level not seen since early 2002.
The bank expects a demand contraction of eight million barrels per day by late March and an annual decline in 2020 of 1.1 million bpd, which it said would be the biggest on record.
Rystad Energy has gone even further, projecting a year-on-year decline in demand of 2.8 million bpd, or 2.8 per cent, this year.
“To put the number into context, last week we projected a decrease of just 600,000 barrels,” Rystad said.
In addition to imposing social restrictions not seen since World War Two, the world’s richest nations prepared to unleash trillions of dollars of spending to reduce the fallout from the coronavirus.
The impact on demand is starting to show in official statistics, with Japan’s trade bureau saying on Wednesday that crude imports into the world’s third-biggest economy in February were down nine per cent from a year earlier.
Virgin Australia became the latest airline to shut its international network with the suspension of all overseas flights, while the Australian Prime Minister, Scott Morrison, warned that the situation could last six months or more.
Elsewhere, Iraq’s oil minister pleaded for an emergency meeting between members of OPEC and non-OPEC producers to discuss immediate action to support the market.
Saudi Arabia’s energy ministry, however, said it had directed its national oil company, Saudi Aramco, to continue to supply crude oil at a record high 12.3 million bpd over the coming months.
Iraq’s Oil Minister, Thamer al-Ghadhban, asked OPEC to help to instigate urgent extraordinary meetings of the broader OPEC+ group, which includes Russia, to “discuss all possible ways” to rebalance the market.