There is reason for Nigerians to worry and it is not only the arrival of COVID-19. Oil price benchmarks are in freefall, crashing through resistance levels as if they were none existent. This week has seen Oil fall to its lowest price levels since July 2017 and barring a miraculous cure for the COVID-19, it is difficult to see what an OPEC+ are able to do, to arrest this downward spiral. We may soon see Brent below $45 as Libya gets back on stream.
Brent crude, the global oil benchmark which is used by Nigeria as the marker for all the crude oil grades they sell has plummeted. It fell as much as 4.2% today, briefly breaking below $50 a barrel, which is a level not seen since 2017. It eventually lost 3.27% or $1.66 to finish the day on the ICE at $50.07 which puts it on track for its worst week in four years. WTI crude ended up at $45.31, a decline of 3.78% on previous days trading.
About 12 years ago in the wake of the recession which caused demand for crude oil to shrink in late 2008, with oil prices collapsing from $147 to $32, I put to the Nigerian National Petroleum Corporation (NNPC) a comprehensive hedging proposal which would act as insurance and allow Nigeria downside protection against falling oil prices. The thing you would have thought any prudent actor would do without prompting.
I repeated the exercise in 2012 and over the years have sought to understand why a country that predicates its budget and entire welfare on the price of oil would not exercise critical prudence and responsibility by unfailingly hedging their crude oil production.
Considering oil markets have been vulnerable for a while as global inventories reach record highs and the renewable footprint grows rapidly. It is not as the warning signals in a world awash with oil were not there. Investment in fossil fuels is declining off the back of climate change and global warming concerns. The oil market outlook for 2020 forecast excessive supply growth exerting downward pressure on prices. Yet nobody in Nigeria thought it might be a decent idea to hedge their production. Made all the more bemusing at a time when Mohammed Barkindo a Nigerian is the Secretary General of OPEC
At the OPEC+ meeting in Vienna next week, we may well get a plausible rendition of King Canute, quite what effect that will have on the bear market in questionable. However if the oil benchmark does not recover until after Q2, Nigeria will have another recession and it will be deep. What is particularly galling is that nobody seems to learn from their mistakes. Nigeria are only just emerging from their last recession and are close to insolvency.
My question to NNPC and by extension the Nigerian Government is this, is the Minister of Petroleum doing a good job?