With Agency Report–The continuous export of the Coronavirus from China to other nations has had devastating consequences on the Nigerian economy and around the world. This is as the price of Bonny Light, Nigeria’s premium oil grade further dropped from $46.33 to $37.22 per barrel, in the international market, Tuesday.
For Nigeria, the ramifications of the price crash are dire as it means the price has now dropped by $19.78 per barrel below the $57, the benchmark for nation’s 2020 Budget.
Similarly, the prices of other crudes, including Brent and OPEC Basket also dropped from $37.40 and $49.50 to $36.95 and $48.33 respectively.
There are indications that oil price would continue to fall, especially as the recent meeting of the Organisation of Petroleum Exporting Countries (OPEC), non-OPEC, which agreed to cut 1.5 million bpd from global supply till the end of 2020, had failed to adopt a deeper oil cut, required to achieve stability in the market.
In its latest report, the International Energy Agency (IEA), stated: “Global oil demand has been hit hard by the Novel Coronavirus (Covid-19) and the widespread shutdown of China’s economy. Demand is now expected to fall by 435 kb/d y-o-y in 1Q20, the first quarterly contraction in more than 10 years. We have cut our 2020 growth forecast by 365 kb/d to 825 kb/d, the lowest since 2011. Lower-than-expected consumption in the OECD trimmed 2019 growth to 885 kb/d.
“The Coronavirus outbreak has also led us to revise down the outlook for global refinery runs. Chinese crude throughputs for 1Q20 have been cut by 1.1 mb/d and are now expected to contract by 0.5 mb/d year-on-year. As a result, global runs are forecast to expand by just 0.7 mb/d in 2020. The launch of IMO’s new bunker fuel regulations in January boosted simple refining margins based on sweet crudes.”
According to OPEC in a statement “the COVID-19 outbreak has had a major adverse impact on global economic and oil demand forecasts in 2020, particularly for the first and second quarters. Global oil demand growth in 2020 is now forecast to be 0.48 mb/d, down from 1.1 mb/d in December 2019.
“Moreover, the unprecedented situation, and the ever-shifting market dynamics, means risks are skewed to the downside. The conference noted that the further impact of the COVID-19 outbreak on oil market fundamentals necessitates further continuous monitoring.”
Commenting on the impact of the free fall in the global oil prices on the nation’s economy, Director General, Lagos Chamber of Commerce and Industry, Mr. Muda Yusuf, said: “The outbreak of the Coronavirus few weeks ago has profound implications for the Nigeria economy. It poses a major threat to Nigeria’s macroeconomic fundamentals, the impact of which may be systemic and far reaching.
He noted that the looming price war contemplation by Saudi Arabia, the largest crude oil exporter, portends even more ominous signs for the Nigerian economy. This is on the back of the collapse of the OPEC – Russia alliance. Saudi Arabia is offering significant discounts to its customers and increasing output.
“As at Friday, 6th March, 2020, crude oil price has fallen to all time low of $45.27 per barrel, the lowest since 2017. Oil price budget benchmark for 2020 Budget was $57 per barrel. This sharp drop in revenue could cause significant dislocations in the 2020 Budget and in the economy, especially for a country already grappling with challenges of weak revenue performance and a complete erosion of fiscal buffers. It is instructive that the finance minister is contemplating a review of the underlying assumptions of the 2020 Budget, and rightly so.
“There is also the revenue effect of the Coronavirus, which is related to the drop in oil price. Oil revenue currently accounts for about 50 per cent of government revenue and about 85 per cent of foreign exchange earnings. With the current scenario of tumbling oil price, a drastic reduction in the revenue of government would become inevitable in the near time. This has implications for the level of fiscal deficit in the budget; budget implementation will be constrained; infrastructure financing will be affected; borrowing may increase, and the capacity to fund capital project will be severely constricted. With this scenario, the outlook for oil dependent economies looks rather gloomy.
“Oil revenue accounts for about 85 per cent of foreign exchange earnings and is the major driver of accretion to the foreign reserves. The slump in oil price and the associated adverse expectations will put fresh pressures on the reserves. Currently, it is at all-time low of $36.2 billion as at 3rd March, 2020,” Yusuf said.
