As crude oil price crashed after Saudi Arabia launched a price war against Russia, the Minister of State for Petroleum, Timipre Sylva, said the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC countries would meet over production cut as rivalry for market share weighs on Nigeria’s 2020 budget.
Sylva said there could be changes in the mode of operation due to the drop in Brent crude which Nairametrics reported fell below $35 after Saudi Arabia and Russian began to vie for market share. Both countries have failed to agree on supply cuts after OPEC officials presented an ultimatum to Russia to cut production by 1.5% of world supply.
Russia, which is non-OPEC member, rejected the cut demand due to the increasing American shale oil production, as it foresaw more cuts. This led to Saudi Arabia and Russia to increase their production, pursuing conflicting self-interests. This causes a problem in the oil market as excess production crashes price, but limited supply inflates market price.
Just as OPEC believes that by cutting supplies, it will force prices to rise, Russia believes a price war is the only solution to curtailing the rise and spread of shale oil.
The disregard for supply cut has affected oil producers like Nigeria where the economy depends on oil revenue. Nigeria’s budget is benchmark on the Brent crude oil being $57 per barrel. But with the oil price crashing down to $30, it causes a major setback for President Buhari’s administration.
The race to rescue economy: Due to the price crash, President Buhari recently met with the Minister of Finance, Budget and National Planning, Zainab Ahmed; Minister of State Petroleum Resources, Timipre Sylva; and the Minister of State, Budget/National Planning, Clement Agba.
He also met with the Governor of the Central Bank of Nigeria (CBN), Godwin Emefiele; the Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Mele Kyari in order to determine what the figure would be, as reducing the benchmark would also lead to a reduction in the size of the N10.59 trillion budget; which already came with a deficit of over N2 trillion.
Nairametrics had reported that the Nigerian government intends to review its 2020 budget to reflect the changes in the oil market and the impact of coronavirus on trade which has been affected due to Nigeria’s close ties with China; where the virus had started before spreading globally. Nigeria has recorded two cases of the coronavirus since the outbreak.
It’s a dire situation for Nigeria as demand for Nigeria’s oil is dwindling and there’s possibility of future deals being pegged at a price much lower than Nigeria’s crude oil benchmark. The US, a one-time major destination of Nigeria’s bonny light crude has since reduced its demand from Africa’s largest economy to nearly zero.