By Udeme Akpan

When the bell that ushered in the year 2020 started to toll, there were no clear indications that oil price would drop to its current zero levels for some reasons.

First, there were no signs that the coronavirus pandemic, first noticed in China towards the end of December 2019, would descend on the entire world, at unprecedented speed with very catastrophic consequences.

Second, the demand for oil had appeared to be strong, indicating that it would be driven mainly by much investment in some economies, especially China and India. Third, the high investment was also expected to usher in oil market stability and adequate revenue for producers, including Nigeria and other members of the Organisation of Petroleum Exporting Countries, OPEC.

Past outlook

However, convinced by these and other factors, OPEC had stated in its World Oil Outlook that: “Long-term global oil demand is expected to increase by about 12 million barrels per, mb/d, rising from 98.7 mb/d in 2018 to 110.6 mb/d in 2040. From a regional perspective, there is a contrast between declining Organisation for Economic Co-operation and Development, OECD, demand and expanding demand in the non-OECD. Driven by an expanding middle class, high population growth rates and stronger economic growth potential, non-OECD oil demand is expected to increase by 21.4 mb/d between 2018 and 2040.”

COVID-19 outbreak

Nevertheless, these were not to be. First, the unprecedented outbreak of coronavirus pandemic has culminated in the closure of industries and other businesses in China, accounting for about one-third of the global oil demand growth. Second, its spread to other economies, culminated in the reduction or complete shutdown, thus eroding demand.

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Current forecast

Consequently, OPEC has been compelled to review its previous forecast. In its latest report obtained by Vanguard, it stated: “World oil demand growth in 2020 is adjusted lower by 0.92 mb/d to 0.06 mb/d, reflecting slower global economic growth associated with a wider spread of COVID-19 beyond China. The impact of the COVID-19 outbreak in China and its adverse impacts on transportation and industrial fuels were the main causes of this downward revision.”

Market situation

The current market situation has affected many producing nations. Already, most affected seems to be the United States, which West Texas Intermediate, WTI, traded at minus $37.63 per barrel on April 20, 2020. Informed sources at the market attributed the development to ‘lack of storage facilities following prolonged limited demand.’

The case of Nigeria

Comparatively, the case of Nigeria, currently exporting some crudes, including Bonny Light, Forcados and Qua Iboe seems to be slightly different. In other words, with its Bonny Light, Nigeria would likely continue to generate at least a little revenue, despite the current very poor situation for some reasons. First, Bonny Light is a premium oil grade, with little sulphur. Second, Bonny Light attracts relatively high demand than other crudes, apparently because it cost refiners less to refine. Third, Bonny light also leads to higher yield than other crudes because of its low sulphur content.

Budget 2020

Nevertheless, these do not mean that the nation’s 2020 budget, earlier benchmarked on $57 per barrel and 2.3 mb/d oil output and later $30 and 1.42 mb/d would be immuned. With the collapse of the price from over $60 to the current $5.31 per barrel, there are clear indications that the 2020 Budget Review Committee, which members include Minister of Finance and Budget Planning, Zainab Ahmed; Timipre Sylva, Minister of State for Petroleum Resources; Godwin Emefiele, Governor, Central Bank of Nigeria, CBN and Mele Kolo Kyari, Group Managing Director, Nigerian National Petroleum Corporation, NNPC, has a lot of work to do.

Conclusion

From all indications, it would take many months of relentless battles to win the war against coronavirus pandemic in many nations, including Nigeria. This means that its negative impact on the global oil market, and by extension, Nigeria’s economy would not likely witness much improvement in the remaining part of 2020, but probably towards the end of 2021.

Consequently, it would make sense for Nigeria, to continue to work with OPEC, in order to find a lasting solution to issues, currently staring the oil market in the face.

The Federal Government and other stakeholders should also be humble to learn the lessons— proper planning, execution of key projects and prudent management of scarce resources— which this pandemic presents, to diversify the nation’s oil-dependent economy, before another challenge of global impact returns.

Vanguard