NIGERIA is facing the prospect of more gloomy economic news as a result of the coronavirus-induced oil crisis as Saudi Arabia has announced plans to increase its daily output to 13m barrels which is certain to depress global prices further.
As a result of the spread of the virus, Chinese output has been severely affected, which in turn has had a domino effect on global industrial production. With supply far outstripping demand, this has led to a collapse in crude oil prices, with Brent Crude, a grade identical to Nigeria’s Light Bonny Crude falling from $45.72 per barrel last week to about $33.45 a barrel for now.
This is the lowest global crude oil prices have been since February 12, 2016 and is exacerbated by a price war between Russia and Saudi Arabia. One-time allies, the two major producers are locked in a battle for dominance, with traders now bracing themselves for Saudi Arabia to flood the market with crude in a bid to recapture market share.
Earlier today, Saudi Arabia’s state-owned oil giant Aramco said it plans to raise its crude production capacity by 1m barrels per day to 13m barrels as the price war with Russia intensifies. Going forward, Saudi Arabia, the world’s top exporter, plans to hike production by at least 2.5m barrels to a record 12.3m barrels a day as from April.
In a statement issued to the Saudi Stock Exchange, Aramco said: “Saudi Aramco announces that it received a directive from the ministry of energy to increase its maximum sustainable capacity from 12m bpd to 13m bpd.”
Aramco chief executive Amin al-Naser, said the company would dedicate all of its resources to achieving the increased capacity quickly. This latest Saudi moves come after the collapse of an oil production reduction agreement between Organisation of Oil Petroleum Exporting Countries (Opec) and non-Opec producers, including Russia.
An original deal proposed by Saudi Arabia called for additional output cuts of 1.5m bpd to cope with the severe economic impact of the coronavirus which has sharply reduced world demand for crude. However, Russia rejected the deal and Saudi Arabia has decided to boost output to regain market share and be in a position to influence developments.
With crude oil prices now poised to fall further, Nigeria is particularly vulnerable as 95% of government earnings come from petroleum product exports. With Nigeria’s 2020 budget predicated on selling 2m barrels of oil at $57 a barrel, both output and price are below government projections.
On Monday this week, President Muhammadu Buhari set up a committee to review the dire situation. It is due to submit its report soon, which is likely to review the budget downwards and also set a new crude oil benchmark price.