NIGERIA: THE CRUDE OIL ECONOMY
Saudi Arabia made what has been described as a surprise announcement, it will voluntarily deepen its crude oil output cuts. The announcement stated that this voluntary output cut would take effect from June.
The cut is an additional 1 million barrels per day which will reduce Saudi production to the lowest level in 18 years. The ostensible reason given by the Saudis is to hasten a recovery from the crash in oil price benchmarks which has pitched them into austerity. According to Energy Minister Abdulaziz bin Salman Al Saud, Saudi Arabia wanted to be ahead of the curve.
The Nigerian national oil company has eventually come to its senses and arrived at the position every other rational actor in the industry has advocated and postponed the full blown Oil bid round which was announced last month as scheduled to take place within 2 weeks.
The IMF have approved US$3.4 billion in emergency financial assistance to the Nigerian Government under the Rapid Financing Instrument to support the authorities’ efforts in addressing the severe economic impact of the COVID-19 shock and the sharp decline in oil prices. The funding is a loan which attracts low interest and needs to be paid back within 5 years.
Nigerians have been told they are resilient, as if they have a choice. A flattery conceived to beguile the masses living in abject poverty. Often repeated by a well fed political class that have garnered enough wealth to insulate themselves from the harsh vagaries of the Nigerian existence.
Bonny Light the most recognisable and one of the most sought after Nigerian crude grades last week traded at $12 per barrel. The low sweet flagship Nigerian crude had up until last month historically traded at a premium to dated Brent. Bonny Light has become emblematic of the fate of light sweet crude grades that yield high cuts of transport fuels in a world in lockdowns.
The much anticipated OPEC++ meeting takes place tomorrow, It is time for Nigeria to be bold and clear eyed in pursuing Nigeria’s best interests. However it remains unclear as to what position Nigeria have decided to adopt. We have heard a number of statements from the Minister of State for Petroleum Resources, Chief Timipre Silva, yet they seem vague and difficult to interpret. The policy is unclear, not so much as inarticulate but unarticulated. To start with Nigeria’s petroleum ministry has stated.
Nigeria must now prepare to accept the new reality, the time of windfall booms fuelled by surging oil revenues has come to an end. The world is awash with oil at a time the renewable footprint is ever increasing. More importantly what the global oil market is witnessing in a time of demand destruction is an existential struggle for market share. Nigeria is ill equipped to join this battle. In the 1980s the Nigerian economy first fell victim to a calamitous economic decline following a windfall boom brought on by crashing oil revenues. The same thing happened in 2014 and as a consequence drove the country into recession . It has now happened yet again in 2020. To make things worse it comes at a perilous time with COVID-19 threatening economic and societal Armageddon.