*Nigerians react to crude oil price drop
*Say Nigeria’s economy may face worst recession
*Blame past administrations for failure to diversify economy
*NNPC GMD optimistic, says oil market will still rebound
There appears to be no respite in sight for Nigeria and other oil producers, as the volatility and continuous price slump in the global oil market continues.
It would be recalled that crude oil prices extended its slide, crashing to its lowest in over two decades due to a terrible combination of very low global demands and concerns that global storage facilities are rapidly running out.
The present circumstances in the global oil market indicate that the output cut deal between OPEC+ and other top oil-producing countries has proven insufficient to take care of declining oil demand.
However, despite the slide of the crude oil reference price for Bonny Light to about $12 per barrel, Nigeria remains optimistic the situation at the international oil market would still rebound.
Group Managing Director of Nigerian National Petroleum Corporation, NNPC, Mele Kyari last week said the intervention of Organisation of Petroleum Exporting Countries OPEC and its allies will soon lead to a rebound of oil prices.
According to Bloomberg, the price of bonny light, Nigeria’s premium oil grade has crashed from about $28 to $12.
The news organisation said its data was provided by traders monitoring the West African market.
The present price of bonny light is well below the cost of productions for Nigerian crude producers which is about $22 a barrel and also lowers than the country’s crude benchmark of $30 per barrel.
This poses a fresh threat for Nigeria as it depends on crude sales for half of its revenue and 90 per cent of foreign exchange earnings.
It would be recalled that about a week ago, faced with the grim reality of the impact of the current coronavirus pandemic which drove the global crude oil price to below 18 year’s low level, OPEC and its allies including Russia, resolved to undertake a cut of about 10 million barrels per day from their members’ oil production.
Considered the largest cut by OPEC in recent times, the cut in global oil supply was aimed at stabilising the market and bringing to a halt the spiraling decline in crude oil prices.
However, since the intervention, crude oil price continued a back and forth movement, indicating continued adjustment in search of the desired stability in the market.
A survey conducted by Nigerian Pilot shows that most people are unanimous that failure of past administrations to diversify the economy in preparation for a time like this is responsible for the current situation.
“MAKE DEM kuku (let them) buy without paying! What’s all this rubbish? Abi o (exactly)! Na wetin remain (what else remains)?” Engr. Cletus Idemator, an oil expert said.
Idemator may have let out the feelings of many stakeholders of the oil industry in the country.
Nigeria may well be in deep trouble with the current situation of the global crude oil price to levels not seen in over two decades.
A gruesome combination of crumbling demand for crude and global storage that has filled to its brim is largely responsible for what is being witnessed in the global oil industry. Saudi Arabia is preparing to increase its fossil fuel production. This is even as global demand for energy continues to fall as a result of the Coronavirus Disease (COVID-19) pandemic.
Report claim that oil storage levels across the world’s storage facilities have climbed to about three-quarters full on average since the January shutdown of major refineries in China’s industrial heartlands to stem the outbreak COVID-19.
Bernard Ekulu, a civil servant, did not hide his anger about the development.
“That’s below the production cost nah! This is not good for Nigeria. Nigeria is in deep trouble,” he said.
In his reaction, Clement Ukpo, an oil dealer, said, “It’s hitting $5. It should crash to 50 cents pretty soon”.
The situation indicates that the output cut deal between OPEC+ and other top oil-producing countries is not enough to take care of the declining oil demand.
It should be noted that the June delivery for WTI declined to $23.69 per barrel, while that for Brent crude declined to $27.83 per barrel.
An analyst, David Lennox, according to a report by Bloomberg, said, “The output cut that we’ve seen, or supposed to see coming, isn’t sufficient to cover the 25 million to 30 million barrels of daily demand that’s being destroyed by COVID-19.”
The oil price crash is still sending shockwaves throughout the industry, even as oil majors have begun reviewing all their existing contracts with their vendors and contractors downward. They had to slash their expenditure across the board.
The negative impact of volatility of the market has seen Exxon Mobil, which was the most valuable company in US as of 2013, reduce in worth to just about 13 per cent as much as Apple and Microsoft. A recent report shows that streaming giant; Netflix is now more valuable than the firm.
In the meantime, there are indications that the International Energy Agency (IEA) is considering the option of paying producers to keep crude oil in the ground. This is expected to take care of the problem of scarce storage facilities.
Nigeria is not an exception to the global impact of the COVID-19 outbreak, low oil demand and inventory of unsold cargoes as had been previously reported.
The oil industry regulator, Department of Petroleum Resources (DPR), had tightened offshore oil rules after some oil vessel workers tested positive to the COVID-19. It directed the oil and gas companies to reduce their offshore workforce and introduce a 28 day staff rotation as part of the measures to contain the spread of the disease.
As part of the pressure of trying to curb the spread of the pandemic, the Rivers State Government, arrested 22 Exxon Mobil staff for violating its lockdown directive by entering the state without approval. They were later released following threat by workers union to down tools and shut down oil facilities nationwide.
The oil market crises are also affecting the performance of some publicly quoted oil exploration and production firms. Seplat Petroleum Development Company has seen its share price on the Nigerian Stock Exchange plunge from about N605 per share in March to about N492 as at today.
Would the present situation push the Federal Government into taking some proactive measures and decisions? Is there a possibility of turning this falling crude oil prices to some advantages?
Nigeria is a country that has depended and still depends so much on the oil sector. Over time, there have been calls to diversify the economy of the country. Sadly, successive governments have not summoned enough political will to drive home the policy – something that has always been used for electioneering campaigns.
Okechukwu Ikegbuonu, an economist, called for regional development.
“We told them this since 2017; they just would pay lip service to economic diversification. Oil is highly volatile. Develop the regions in line with relative economic advantages, build a sustainable revenue based on the real sectors of the economy, Nigeria said no, playing politics with a compelling truth,” he said.
Ikegbuonu maintained that Nigeria’s situation in the face of the downward crude oil prices should not be sympathised.
“I want to pity Nigeria, but that must be with caution. Critical sectors of the economy that could be developed to function as the source of revenue, and invariably guarantee fiscal sustainability, have been deliberated suffocated. My brother, please join me in learning not to pity Nigeria. It does not connote lack of patriotism,” he urged.
Mrs. Christiana Ikwuka, a civil servant, expressed sadness with the way this has been going in the country.
“Those waiting to drink it, and fill their pockets, can now have a field day. The army of subjugation occupying all the oil rivers territories will have so much of the oil to drink as salaries,” she said.
Ikhana Ekwuejho, a public analyst, said that this could spark off the much talked about restructuring.
“It’s good for the country. Times are coming when the oil will be useless for those that put their heart and soul in Nigeria oil, time will tell. The restructuring may as well begin now,” he said.
Kenneth Okoro, a business man, expressed satisfaction with the latest development.
“It’s a nice development. Build human resources. Mba (no). Another resources apart from oil. Mba.
“Please let it fall to one kobo so that government can have common sense. Today is that tomorrow we were talking about yesterday,” he cajoled.
It is not a totally lost situation for Nigeria, if there is will to let go and move on. If the managers of Nigeria’s economy, especially those in the oil and gas sector, take a radical view, and depart from crude oil exporter, and recalibrate its crude oil management template, Nigeria stands a very good chance of benefiting from the current plunge in international crude oil prices. Nigerian Pilot