Tougher times seem to lie ahead for Nigeria as crude oil price tumbled four per cent on Monday to $36-40 per barrel, coming close to an 11-year low, and potentially endangering the implementation of the 2016 budget, which is predicated on an oil price of $38 per barrel and output of 2.2 million barrels of crude per day.
More frightening was that the
Bloomberg data revealed that the world’s cheapest oil is already close to $20 in non-OPEC countries as against $35 in OPEC states.
The sharp drop in crude oil prices followed growing fears that the global oil glut would worsen in the months to come in a pricing war between the Organisation of Petroleum Exporting Countries (OPEC) and non-OPEC producers.
Latest data by Bloomberg yesterday noted that prices were sliding in non-OPEC member countries because OPEC member states in economic turmoil want higher prices without having to cut their own production, relying instead on Saudi Arabia to be a ‘swing’ producer.
OPEC, rising from its meeting on December 4, in Vienna, Austria, had decided to maintain crude oil output despite pressure to cut production to ameliorate the effects of the plummeting prices on member countries’ revenues.
OPEC has always insisted on maintaining crude oil production, saying it could only agree to cut production if non-OPEC members would be willing to do the same.
Nigeria’s oil minister and OPEC president until last week, Emmanuel Kachikwu, had disclosed after the Vienna meeting that the group considered cutting production but decided that a reduction “even of five per cent” was not likely to push prices higher if non-OPEC producers, which make up about two-thirds of global production, do not join in cutting.
The decision was contrary to expectations from Nigeria and other OPEC members that the organisation would reduce production output to boost crude oil prices which have been on the downward trend since June last year.
Goldman Sachs, one of the most influential banks in commodity markets, also recently said that oil could fall to as low as $20 per barrel amid fears that the world is running out of storage capacity.
In its statement on the global crude oil crash penultimate Friday, the International Energy Agency (IEA) corroborated both reports, saying that the global supply glut was likely to deepen next year and put more pressure on prices.
According to the Bloomberg data, a blend of Mexican crude plunged 73 per cent in 18 months to $28 on December 11, its lowest level since 2004.
There was also Iraq offering its heaviest variety of oil to buyers in Asia for about $25, while in western Canada, its crude has slumped 75 per cent to $21.37, the least in almost eight years.
Apart from Western Canada Select, which is heavy and sulphurous, other varieties, including Ecuador’s Oriente, Saudi Arabia’s Arab Heavy and Iraq’s Basrah Heavy were selling below $30, the data showed.
Venezuela is also not insulated as it is experiencing similar lows.
“More than one-third of the global oil production is not economical at these prices,” Ehsan Ul-Haq, senior consultant at KBC Advanced Technologies Plc, said by e-mail.
Oil has slumped to levels last seen in the global financial crisis in 2009 amid a global supply glut, but the data underlined that while the prices of benchmarks, West Texas Intermediate and Brent, hover in the $30s, they represent a category of crude — light and low in sulphur — that is more highly valued because it is easier to refine.
But the data showed that some producers of thicker, blacker and more sulphurous varieties have suffered heavier losses and were already living in the $20s.
Global benchmark Brent slid 5 cents to $37.87 a barrel on the London-based ICE Futures Europe exchange at 11:38am Singapore time. WTI was unchanged at $36.31.
Even at that, oil prices from OPEC, which supplies about 40 per cent of the world’s crude, are trading below the main two benchmarks.
The daily price of 12 crudes produced by OPEC stood at $33.76 a barrel on Monday, the lowest in seven years.
The prices of both benchmarks have fallen every day since OPEC, on December 4, abandoned its output ceiling.
OPEC has been pumping near record levels since last year in an attempt to drive higher-cost producers such as United States shale firms out of the market.
Bloomberg had also noted that, in the past six sessions, oil prices have shed more than 13 per cent each due to the glut that followed the cartel’s action.
In addition to the current excess inventory in the global oil market, which is estimated at 1.5 million barrels per day, new supply is likely to hit the market early next year as Iran ramps up production once sanctions are lifted.
The imminent lifting of sanctions against the country followed the July agreement on its disputed nuclear programme.
Iran’s crude oil exports are set to hit a six-month high in December as buyers ramp up purchases in expectation that sanctions against the country will be lifted early next year, Reuters quoted an industry source as saying.
On Friday Gulf, producers and Russia have said they would not cut output even if prices fell to $20 per barrel, also due to the low cost of production in those areas.
But in Nigeria, the average cost of production by the International Oil Companies (IOCs) is about $30 per barrel, thus making it difficult for Nigeria to sustain production in a very low price regime of $30 and below.
The drop in the global benchmark Brent crude to $39 per barrel yesterday is threatening the yet-to-be-presented N6 trillion Nigeria federal budget for 2016. The Federal Executive Council (FEC) approved the budgetary amount at its meeting on Monday, with a proposal for $38 per barrel as the oil benchmark price, down from $53 this year, 2015.
The Excess Crude Account, into which the country saves the difference between the market price of oil and the budget benchmark to provide a cushion when oil prices fall or extra cash is needed for spending on infrastructure, has been depleted in recent times as oil revenues plunged.
The account, which stood at about $4.11billion in October 2014, dropped to $2.45 billion in December that year, down from about $3.11 billion in November. The balance in the ECA was put at $2.1 billion in July this year.

Inconclusive

All looters need to be paraded naked, given 2000 lashes each and thrown into the lion's den.

Crude oil would revenue would have been used yo develop this country but no, our stupid, old, bastard, cruel leaders embezzled and looted us dry. Ordinarily, Nigeria should've been competing with the likes of USA, Germany, Japan etc but the reverse is the case.

No looter will see 2016, IJN.

Gbese re oo.
Agbada don hook barbed wire.

The problem is near. I tink it's high time we started developing other sector and stop focusing on oli and gas. Agric and solid minerals are thre,yet we neglet dem.

Nigeria is a sinking titanic

I will zablize oil price at $100 when voted in and kwanzequently force #1to equal $1. because there is a lot of kwaruption in the fetrolump zector and we vave been zubsidizing kwaruption, fecause for me there is nothing like zubsidy, anyone that tell you about zubsidy is a fruad.

If we have functional refineries the problem will almost be solved because we would consume most and export refined products with added values to the economy. That is why it appears it's only Nigeria that's feeling the impact of the oil price glut most among the oil of exporting countries of the world.

That is the way forward.

hnm