By Hamilton Nwosa ( Head, The New Diplomat’s Business and data tracking desk)
Despite Saudi Arabia, Russia, United States, Nigeria, and 19 other countries historic deal, which slashed production by 9.7million barrels per day, ended Saudi-Russia stand-off, and resolved Mexico-Saudi’s face-off, Oil price is still tumbling down to approximately $17 per barrel.
United States oil prices, which reflect global energy dynamics, dipped this weekend by astonishing 8%, crashing down to $18.27 per barrel, the lowest ever in the last eighteen years. Global energy experts thus predict a grim outlook for the Oil industry in the coming months as prices of crude crashed further as low as $17.33 per barrel. Analysts say this is the lowest ever since November 2001.
Recall that Nigeria and 22 global Oil-producing nations had struck a deal last week to withhold 9.7million barrels a day collectively from the international oil market. Curiously, experts insist that the sliding price is an indication that the initial brief rebound in oil prices shortly after the agreement, was premised on fluid dynamics that have since evaporated in an environment where international crude surplus has reached an all-time high. Recall that price of crude went up as high as $28.34 per barrel shortly after United States President Donald Trump, Russian President Vladimir Putin and Saudi King Salman and OPEC+ agreed to production cuts last weekend.
Energy experts aver that this trend might persist globally throughout the year because the international cut isn’t enough as the world is speedily tinning out of conventional storage capabilities, and space facilities occasioned by covid-19 lock-down and allied factors. Ryan Fitzmaurice , an analyst at Rabobank put the issues in perspectives:”Until the lockdowns are removed and production cuts kick-in, the market has to find a home for these barrels…To do that, you have to incentivize people to get creative with storage.”
Recall that Oil barrels have been piling up at high velocity in various storage facilities, triggering apprehension that the international market might soon run out of space. Fitzmaurice adds: “At that pace, storage capacity will be full in the not too distant future.” Other energy analysts say the issue centrals around the fact that “ even though OPEC+ reached an historic agreement, the effects of the oil price war still linger”. In the United States, the situation is also complicated like in many other countries including Nigeria. Norway’s Energy consulting firm, Rystad has come up with frightening projection that “140 US oil producers could file for bankruptcy this year if oil stays at $20 a barrel, followed by another 400 in 2021, and this would cause countless jobs to disappear.”
For Nigeria, Africa’s most populous nation, whose externally generated revenue is about 97% Oil-enabled, the complicated dynamics is further worsened by the country’s recent credit down-grading from stable to negative by Standard & Poor (S&P). The global rating agency had cited Nigeria’s failing foreign-exchange reserves, slow GDP growth, rising public debt, multiple exchange rates and external pressures as indices it predicated its rating upon. Perhaps that explained why Nigeria, like many other OPEC countries and non-OPEC countries welcomed the 9.7 million barrels daily production cut, as a strategic way of jump-starting an already sluggish Oil industry once again.
Recall that Nigeria’s Minister of State for Petroleum Resources, Chief Timipre Sylva, a former Oil-rich Bayelsa State governor, had in statement released by the Ministry of Petroleum Resources, said other planned cuts would stand in the deal, meaning “an 8 million barrel per day cut from July through the end of the year and a 6 million barrel cut for 16 months beginning in 2021.” The statement added: “This will enable the re-balancing of the oil markets and the expected rebound of prices by $15 per barrel in the short term.”
However, this dynamics appear pretty complex with other variable mix if production cut is not complimented by further reduction in production cost itself. Recall that NNPC’s GMD Mallam Mele Kyari had similarly painted an uncertain picture of the unfolding setting. Kyari noted that given Covid-19 pandemic, Oil producing countries including Saudi Arabia now sell Oil at $22 per barrel. The consequence is that should Nigeria emulate Saudi Arabia, the country would be earning only roughly $5 on a barrel, a development that is highly unsustainable. Even more worrisome, data tracked from Knoema.com, a global oil data firm had indicated that production cost in Nigeria’s Deepwater may be higher than $17 per barrel, as it ranges between $25 and $30 a barrel.
An Energy analyst at RystadThomas Liles says “ the near-certainty of a steep reduction in crude-by-rail exports this year, as well as deferral of spring maintenance at several key oil sands mining projects…the global oil industry may increasingly look to offshore oil tankers to store their extra crude oil, but for this to be economic it would require oil prices to fall further. The global oil price fell to lows of $25 a barrel…, from more than $65 at the start of the year, and remains below $30 a barrel. That is why we have warned the industry that the oil price may fall to $10 a barrel this year.”
Nigeria’s Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed recently said the country may slide into recession if the Covid-19 pandemic continues unabated for the next six months just as the International Monetary Fund (IMF) admitted that the global economy has already entered recession with no fewer than 80 countries approaching the IMF for financial help, including Nigeria .
However, Nigeria’s Minister of State for Petroleum Resources, Chief Timipre Sylva, a key player in the APC-led federal government in statement released by the Ministry of Petroleum Resources, is hopeful that “an 8 million barrel per day cut from July through the end of the year and a 6 million barrel cut for 16 months beginning in 2021… will enable the re-balancing of the oil markets and the expected rebound of prices by $15 per barrel in the short term.”
Correspondingly, Industry pundits envisage that the production may lead to a rebound in crude oil prices “by at least $15 per barrel in the short term, thereby enhancing the prospect of exceeding Nigeria’s adjusted budget estimate that is currently rebased at $30 per barrel and crude oil production of 1.7 Million Barrels per day” .
