Nigeria risks another recession as global oil market combats greatest glut ever

The global oil market may be right at its darkest hour as oil prices plunged below $30 per barrel on Monday.

Governments around the world are on their toes contriving reforms and fiscal buffers aimed at curbing the sweeping impact of the coronavirus on economic growth, money markets, stock exchanges and the financial system as a whole but the implacable pandemic is somewhere saying its reign is not yet over.

Donald Trump, the United States President, acknowledged yesterday that “we are fighting an invisible enemy” and that affirmation is right for Nigeria as for the rest of the world.

Brent, the international oil benchmark for Nigeria’s crude, dipped to $29.52 per barrel early on Monday, its lowest point since January 2016 while US Western Texas Intermediate (WTI) sold for $28.70.

At the moment, the global oil market is at a saturation point, beset by unprecedented supply just as demand is falling fast. Lockdown in some countries with severe cases of the coronavirus, principally China, is putting heavy strain on vehicular movement and energy needs of citizens with the implication of sharp drop in oil demand.

Just last week, the Nigerian National Petroleum Corporation (NNPC) through Mele Kyari, its Group Managing Director, said that Nigeria was finding it hard to sell more than 50 of its cargoes, translating to over 70 per cent of the country’s total oil exports.

Yet, the likelihood that the oil market will witness a worse glut soon is huge. London-based financial intelligence firm, IHS Markit, said in a recent forecast that the market could be beset by oversupply of oil running to between 800 million and 1.3 billion barrels.

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This it said in the light of the battle between Saudi Arabia, the world’s largest exporter of oil, and Russia to dominate sales through lowly priced crude.

State-owned Saudi Aramco’s recent announcement to ramp up production from April to May despite the current glut implies that global oil prices are heading for the worse.

“The last time that there was a global surplus of this magnitude was never. Prior to this, the largest six-month global surplus this century was 360 million barrels. What is coming will be twice that or more,” said Jim Burkhard, vice president at IHS Markit.

Pierre Andurand of the oil hedge fund, Andurand Capital Management estimated that demand might drop to 10 million barrels per day over a long time, which has never been recorded.

With this year’s budget benchmarked at $57 per barrel and daily crude oil production estimated at 2.18 million barrels, the current price of Brent crude leaves a shortfall of $27.48.

By implication, the Nigerian Government is losing $403.956 million (about N147.848 billion) every week at this rate.

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