Oil prices are crashing down to their lowest since 2002, due to the global Coronavirus pandemic. The Covid-19 crisis, has brought about a worldwide economic slowdown and low oil demand.
Factories/companies are shutdown, planes are grounded, since the world is on lockdown,the roads are empty. The demand for oil globally is falling so fast. Supply on the other hand is bouyant amid price war between Saudi Arabia and Russia.
Although, West Texas Intermediate and Brent are trading North of $20 per barrel, some regional prices have plunged into single digit. Brent Crude, against which Nigeria’s crude oil is priced, fell to $24.92 barrel as of Wednesday.
Oil is becoming very very cheap that companies might be forced to shut their oil rigs. With the drastic drop in oil prices, oil has lost more than two – thirds of its value since January.
“The Oil gut is creating a situation where some obscure grades of oil have already dropped below Zero. For instance, a Wyoming crude grade was recently bid at negative 19 cents a barrel”, Bloomberg News reported last week.
Nigeria’s Oil Fields Might Shutdown.
Oil fields of some producers in Nigeria might shutdown due to oil price crash, low demand and oil glut in the global market. The cost of oil production compared to the current oil price is causing a huge strain on Nigeria’s oil producers.
Brent Crude, fell to $22 per barrel on Monday, forcing some global producers to start shutting their Oil rigs.
According to NNPC’s Group Managing Director, Mallam Kyari, the current cost of oil production in Nigeria is between $15 – $17 per barrel. On the other hand, Saudi Arabia’s coat of production is between $4 – $5 per barrel.
Kyari, said, countries producing at the cheapest price would remain in the market. Those with high cost of oil production will not be able to cope with the competing prices. He noted that last month, about 50 cargoes of Nigerian crude oil had yet to find buyers. This was due to the drop in demand.
On The Foreign Scene.
US oil companies are starting to make the tough decision of “Shutting In” production.
According to Goldman Sachs, oil well “shut-ins”, have reached at least 900,000 barrels of oil per day. Goldman Sachs,noted that the true number is likely higher and “growing by the hour”. Eventually, the industry could loose as much as 5 million barrels per day of oil supply capacity.
Oil Glut And What It Implies.
Since oil production is still on but demand is low, this means there would be an excessive abundance of oil. The world will soon run out of room to store all the unneeded barrels of oil if the Covid-19 pandemic persists.
In order words, refineries, terminals, storage facilities, ships and pipelines, eventually, could reach capacity. This, according to Goldman Sachs, hasn’t happened since 1998.
In April, some 6 million barrels per day of “homeless crude oil” might literally have nowhere to go, JBC said. According to the energy firm, the figure would rise to 7 million Barry per day in May.