With Coronavirus, Saudi-Russia Oil War, It’s Trouble for Nigeria
The debilitating effect of the coronavirus pandemic on the global economy is now rife, with oil prices crashing to a three-year low. Nigeria, an OPEC member and a major exporter of crude oil, is unfortunately caught in the midst of the unfolding consequen
It was the biggest crash in oil prices in over 20 years. Global oil demand has only contracted in three years since 1985. No one saw it coming, yet the signs were palpable. It began with the coronavirus and as Bloomberg noted of the annual International Petroleum Week, a major oil-industry gathering in London, at the end of February,“the mood darkened as outbreaks from Italy to Iran forced traders to re-evaluate the virus’ impact on the global economy”.”Fewer trips to work, cancelled vacations and disrupted supply chains all meant reduced demand for fuel.
By late February, the IMF had slashed its economic growth forecast for Nigeria citing falling oil prices as it urged the country, Africa’s biggest crude oil producer to diversify its oil-reliant economy.
The fund has now cut its forecast for Nigerian gross domestic product growth this year from 2.5 percent to 2 percent“to reflect the impact of lower international oil prices…Under current policies, the outlook is challenging,” the IMF said.
By early March, commodity traders and oil companies had begun updating their internal forecasts, with some cutting 2020 demand growth to a range of 200,000 to 700,000 barrels a day, according to Bloomberg. By the end of the first week of March, oil prices had crashed more than 9 percent to their lowest level in nearly three years as major producing nations failed to agree on supply cuts aimed at addressing the collapse in global demand caused by the coronavirus outbreak.
By the beginning of the second week, Brent crude oil futures had tanked as much as 31per cent to $31 a barrel as Saudi Arabia ratcheted up pressure on Russia by slashing its list prices by the most in some 20 years. Saudi Arabia’s shock decision as talks on production cuts between OPEC and its allies ended unceremoniously.
Saudi Arabia’s decision to cut prices added to pressure on an oil market already reeling from a global economic growth slowdown at the hands of the coronavirus outbreak.
Goldman Sachs has since come out with a dire warning: $20 a barrel oil.
“The prognosis for the oil market is even direr than in November 2014, when such a price war last started, as it comes to a head with the significant collapse in oil demand due to the coronavirus. This is the equivalent of a 1Q09 demand shock amid a 2Q15 OPEC production surge for a likely 1Q16 price outcome. As a result, we are cutting our 2Q and 3Q20 Brent price forecasts to $30/bbl with possible dips in prices to operational stress levels and well-head cash costs near $20/bbl,” Goldman Sachs oil strategist, Damien Courvalin, said in a note to clients as reported by CNN.
Courvalin added,“This completely changes the outlook for the oil and gas markets, in our view, and brings back the playbook of the New Oil Order, with low-cost producers increasing supply from their spare capacity to force higher-cost producers to reduce output.”
Then out of the blues, Saudi Arabia,