Anxiety over Nigeria’s economy as oil prices tumble amid OPEC, Russia failed talks

Oil prices slumped Friday after the Organisation of Petroleum Exporting Countries (OPEC) and its allies failed to reach a deal on oil production cuts.

The decision followed Russia’s refusal to tighten supply to counter the effects of the coronavirus outbreak on oil prices and the global economy.

PREMIUM TIMES reported how the Organisation of Petroleum Exporting Countries (OPEC) resolved on Thursday to cut crude oil production from its members by a combined volume of about 1.5 million barrels per day.

The cut, which is about 1.5 per cent of global crude oil supplies of over 300 million barrels per day, was approved during the crucial 178th (Extraordinary) meeting of the OPEC Conference in Vienna, Austria.

The decision is expected to be in force till next June 30, subject to a review depending on changing conditions in the international oil market.

The OPEC said the burden of the cut would shared with non-OPEC allies, led by Russia.

On Friday, Moscow torpedoed an attempt by the big oil producers to cut output and stabilize the market. Consequently, the oil cartel’s two-day meeting in Vienna ended with no new agreement, sending crude prices into a freefall.

Stalemate

Russian Energy Minister Alexander Novak on Friday told reporters in Vienna that the talks between OPEC and his OPEC+ grouping had failed to bring about a deal, AFP reported.

“Regarding cuts in production, given today’s decision, from April 1, no one — neither OPEC countries nor OPEC+ countries — are obliged to lower production,” he said.

OPEC’s Secretary-General Mohammed Barkindo said the meeting had been adjourned, although consultations would continue.

“At the end of the day, it was the general, painful decision of the joint conference to adjourn the meeting,” he explained.

“We have some few knotty issues, but the norm is here to have everybody on board, unanimity.”

Prior to the meeting’s official start, ministers from Saudi Arabia, the world’s number three oil producer, and Russia, the number two, had huddled for hours of bilateral discussions.

But soon as news of a “no deal” began to seep out, oil prices plunged more than seven per cent, with Brent North Sea crude tumbling to $46.14 per barrel and WTI to $42.26.

Virtu Financial founder Vincent Viola told CNBC on Friday that he believes oil will test the $35 level again, which not adjusting for inflation is more like $28 to $32. In turn, this will pressure many American producers—-and others from across the world.

“The exploration and production patch is going to go through a dislocation and you’re going to see a lot of bankruptcies and replacement and quite frankly restructuring of the domestic oil market,” he said.

Corona Virus

Oil prices have tumbled into bear market territory since the coronavirus outbreak led to softer demand, especially in China. Stakeholders expected OPEC to step in, in a bid to prop up prices.

The oil cartel and its allies have since early 2017 tried to support prices through cuts on production, initially of the order of 1.2 million barrels per day.

In December, they announced a further 500,000 barrel cut with Saudi Arabia adding a “voluntary” contribution of 400,000 barrels.

OPEC wanted the new proposed cuts to run until the end of 2020, but Moscow foot-dragged and prices tumbled.

Nigeria’s worrisome budget projection

As at 11:18 Friday night, PREMIUM TIMES’ checks revealed that Brent crude sold at $45.54 while Nigeria’s Bonny light sold at $51.94, according to details on oil data site.

Again, the stumbling prices fall short of Nigeria’s projected oil revenue benchmark of $57 per barrel, with a potential negative impact on the nation’s estimated revenue for the fiscal year.

In its 2020 budget, Nigeria pegged oil production at 2.18m barrel per day, with a price benchmark of $57 per barrel. But in recent weeks, the impact of coronavirus has sent prices tumbling, crashing at $51 per barrel. On Friday, prices crashed further.