People & Money

Cheaper Than Pure Water: Oil Crashes Below $0

Global crude oil price dropped below $0 per barrel on Monday, April 20th, as oil floods market with little demand due to the coronavirus pandemic.

The West Texas Intermediate (WTI) crude shed 310% to trade on the negative, $ -38 per barrel, while Brent crude stood at $26 per barrel. The sharp decline means that the price of a 50CL (centilitre) sachet of water (30 cents) in Nigeria is now more than the barrel of US crude oil. A barrel is approximately 42 US gallons or 159 litres.

Traders fled the May futures contract market ahead of its expiration, causing the oil price to plunge to an all-time low, Bloomberg reports. Also, next month’s contract fell 11% to $22.22 a barrel. A market analyst said refiners are rejecting barrels at a historic pace, and only two things can solve historical trends; either the market hits  rock bottom, or COVID clears.

Hope on OPEC and allied members deal

Two weeks ago, OPEC and its allied members agreed to remove 9.7 million bpd of oil from the market. The deal is expected to cut production from 9.7 million bpd in May to June 2019, decline to 7.7 million bpd for the period July to December 2020, and then further to 5.8 million bpd until the end of April 2022. According to OPEC, the essence is to combat falling demand and bring the price war to an end. Despite this motive, there has not been any positive impact on the global prices of crude oil.

Nigeria in the mix

Nigeria is dangerously exposed to crude oil prices crash. It caused an economic recession in 2016. The 2020 budget was benchmarked at $57 per barrel and production volumes at 2.18 million barrels per day. The global oil price shock has forced the government to reduce oil price estimates to $30 per barrel and daily crude oil production to 1.4 million barrels.

The global oil price has fallen well below the revised 2020 budget benchmark, threatening foreign exchange earnings 90% of which is derived from oil exports and recurrent and capital expenditures. It is likely that Government workers at the Federal and State levels will go unpaid. Companies that can’t access foreign exchange to import inputs, in addition to being hit by the collapse of purchasing power, will also lay off staff.

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