The price of Bonny Light, one of Nigeria’s crude grades, has dropped to about $12 – $13 a barrel this week. The price is $15 lower than the value of the global benchmark if crude oil, Brent crude, which stands at $28, as on Friday.
The development means that the current selling price is below the cost of production for Nigerian crude producers, which is estimated at $22 and the budgeted crude benchmark of $30 per barrel.
It appears the record supply cut by the Organisation of Petroleum Exporting Countries (OPEC) and its allies (OPEC+) could not save the crude, as the value dropped due to closure of industries across the world.
The global lockdown implemented by world leaders to contain the coronavirus pandemic has led to the closure of factories and refineries and in turn, a drop in global demand.
For instance, a large part of Europe, that constitute the major market for Nigeria, has gone into lockdown mode to combat the COVID-19 pandemic. In addition, even with lower oil prices, long-haul buyers from Asia do not want oil cargoes because there are also shipping costs to pay and no real need for the oil barrels since demand has plunged.
Meanwhile Oil prices in the US have crashed below zero for the first time in history as demand for energy plummeted due to the coronavirus pandemic.
The historic fall was fuelled by traders not wanting to get stuck owning crude oil with nowhere to keep it. This also due to the fact that storage facilities are nearly full.Tanks could hit their limits within three weeks, according to analysts.
Naeem Aslam of Avatrade said in a report. “The steep fall in the price is because of the lack of sufficient demand and lack of storage place given the fact that the production cut has failed to address the supply glut.”
“A very painful move but it can’t last for long, since producers are switching off wells as we speak.” “Until demand shows some sign of life, oil prices will likely remain on life support.”