Saudi Arabia’s Move To Unilaterally Increase Oil Output, Could Make Matters Worse For The Nigerian Economy

Saudi Arabia plans to unilaterally increase oil output, next month; a move that could further reduce prices, reliable sources told Bloomberg. Such a move could make matters worse for oil-dependent countries like Nigeria.

Recall, that the price of crude oil reduced on Friday, after oil Producers failed to agree on oil cuts at an oil Producers meeting.

Members of the Organisation of Petroleum Exporting Countries, OPEC, resolved on Thursday, to cut crude oil production by a combined volume of about 1.5 million barrels per day, to stop further reduction in international oil price.

The cut would have been about 1.5 percent of current global crude oil supplies of over 300 million barrels per day.

OPEC said that the burden of the cut would be shared with non-OPEC Allies, led by Russia.

However, on Friday, Moscow rejected the plan and said that countries are free to export as much oil as they can, from March ending, when the current deal ends.

Responding aggressively to the collapse of its OPEC+ alliance, Saudi Arabia plans to increase oil output next month, going well above 10 million barrels a day.

“Saudi Arabia is now really going into a full price war”, Bloomberg quoted the Managing Director for the Middle East at Oil Consultant FGE, Iman Nasseri, as saying.

Already, Saudi Arabia has begun to show its mettle, as it on Saturday, slashed the price it sells crude into foreign markets.

The price slash offered unprecedented discounts in Europe, the Far East, and the United States, US, and enticed refiners to purchase Saudi crude, at the expense of other Suppliers, Bloomberg further reported.

The big price slash may be an effort to force Russia and other Producers, back to the negotiating table.

According to the report, Saudi Arabia, the world’s largest oil Exporter, has privately told some market participants that it could raise production much higher, if needed, even going to a record of 12 million barrels a day.

Saudi’s production is likely to rise above 10 million barrels a day, in April, from about 9.7 million a day, this month, before going to as high as 12 million barrels.

“That is the oil market equivalent of a declaration of war”, a commodities hedge fund Manager told Bloomberg.

Nigeria makes most of its foreign earnings from oil. The current price of oil is already well below the $57 a barrel Nigeria bench marked in its 2020 budget, with planned daily production put at 2.18 million barrels.

Currently, Nigeria produces about 2 million barrels daily.

According to details on the oil data site, international benchmark Brent crude slid 9.4 percent to settle at $45.27 per barrel, on Friday, while Nigeria’s Bonny light sold at $46.33 per barrel, sliding at about 10.8 percent.

With oil demand being overwhelmed by the coronavirus outbreak, if Saudi pumps more oil as it planned by April, oil prices will fall further, a move that could further affect Africa’s largest economy, Nigeria.

“This is going to get nasty”, Bloomberg quoted Doug King, a co-Founder of the Merchant Commodity Fund.

“OPEC+ is going to pump more, and the world is facing a demand shock. $30 oil is possible.”
Last week, Nigeria’s Finance Minister, Zainab Ahmed, called for a review of the budget, as she said that the outbreak of Covid-19 (coronavirus), negatively impacted Nigeria’s oil revenue.

Already, Experts fear that Nigeria could slide into a recession, if the price of crude continues to slide.

Between April and June 2016, Nigeria slipped into a recession, caused by a critical fall in global oil price.

The oil prices fell from about $112 per barrel in 2014, to below $50 dollars per barrel in 2016.

Since Nigeria recovered from its last recession, President Muhammadu Buhari promised to diversify the Nigerian economy, from being oil-dependent. That, however, is still a long way from being achieved.

Already, Nigeria’s ability to cushion any effect of global oil price has been weakened, as the country’s Excess Crude Account dropped to about $71 million, in February, from over $2 billion, in November 2018.

Reacting to the Saudi move and a potential drop in oil price, a Financial Analyst, Tope Fasua, said that Nigeria is not prepared for the economic eventuality.

He stated that if the oil price gets to $30 per barrel, it may mean a recession for Nigeria, because the oil sector is a major part of the economy.

“All these other countries are prepared, they have enough reserves, Saudi Arabia has trillions of dollars in its reserve, shelving it for it’s sovereign wealth fund, Russia equally has quite a bit of reserve and sovereign wealth fund.

“Already, the Nigerian economy is in trouble, I think that is why they intended to borrow $22.7 billion loan, because the loan is for every other budget item”, he said.

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