Africa Press-Nigeria:<\/p>\n
For the first time ever, the US benchmark West Texas Intermediate (WTI) for May delivery ended trading at -$37.63 on Monday.<\/p>\n
Before the market closed, the WTI oil prices were seen to be dropping sharply, notably below $12, the first time in 21 years. The sharp drop to negative is something that has never been recorded before.<\/p>\n
Below are some questions to assess what this means and how it affects Nigeria.<\/p>\n
What does this mean for oil-producing countries like Nigeria?<\/p>\n
Oil producing countries have different benchmarks their commodity is valued against. Nigeria crude oil, for instance, is benchmarked against the Brent Crude which as at 11:41 pm on Monday is valued at $25.57 while the West Texas Intermediate, although still negative, has slightly appreciated to $-16.20.<\/p>\n
The Brent Crude is considered the international benchmark. Other benchmarks include but not limited to Mexican Basket (currently trading at $14.35), Indian Basket (currently trading at $20.56) and Dubai (currently trading at $28.11).<\/p>\n
What does the negative value mean?<\/p>\n
The current negative valuation of the WTI is for the May delivery. June delivery is trading at a still low of $22 a barrel.<\/p>\n
Sellers of the May contract have just one more day to find buyers, but with storage in short supply, they are struggling to find takers.<\/p>\n
The negative valuation therefore simply implies sellers are paying others to take the commodity.<\/p>\n
Why would oil sellers pay others to take the commodity?<\/p>\n
In the oil market, the law of supply and demand is subtle. The price of oil is set in oil futures market. This means buyer signs a contract to buy barrels at a specified amount at a particular date in the future. Under a futures contract, buyers and sellers are expected to go through the deal as implied at the specified date.<\/p>\n
A seller might have lots of contracts and lesser space. So, will need to offload the present commodities to accommodate future commodities.<\/p>\n
Does it mean Nigeria’s crude oil is worthless?<\/p>\n
No. Nigeria oil is not worthless and it is currently not trading at the negative. The current worth is $25.57 a barrel.<\/p>\n
However, since the nation’s 2020 budget was predicated at $53 per barrel of crude oil, this may present economic problems. President Muhammadu Buhari has however constituted a committee to revisit the budget since the emergence of the drop in oil prices.<\/p>\n
What is the cause of the fall in price?<\/p>\n
The decline in oil prices has been persistent for a while. According to the US Energy Information Administration (EIA), Crude oil prices were generally lower in 2019 than in 2018.<\/p>\n
However, the coronavirus disease (COVID-19) outbreak made things worse in 2020. Companies can no longer produce in full capacity and thus lower demand for the commodity (oil). And oil-producing countries are still producing massively, making the market overflooded.<\/p>\n
Any hope for the future?<\/p>\n
Yes. If the coronavirus disease can be completely curbed, there will surely be an improvement in the oil prices since companies’ production will return to normal; invariably demand is expected to be more than present.<\/p>\n
What can world leaders do?<\/p>\n
There is a need for concerned parties to agree on a way forward. It is important that all nations control their production to stabilise the market.<\/p>\n
In the 10th (Extraordinary) OPEC and non-OPEC Ministerial Meeting held via videoconference, on Sunday, April 12, 2020, it agreed to, “Adjust downwards their overall crude oil production by 9.7 mb\/d, starting on 1 May 2020, for an initial period of two months that concludes on 30 June 2020.<\/p>\n
“For the subsequent period of 6 months, from 1 July 2020 to 31 December 2020, the total adjustment agreed will be 7.7 mb\/d.”<\/p>\n","protected":false},"excerpt":{"rendered":"
Africa Press-Nigeria: For the first time ever, the US benchmark West Texas Intermediate (WTI) for May delivery ended trading at -$37.63 on Monday. Before the market closed, the WTI oil prices were seen to be dropping sharply, notably below $12, the first time in 21 years. The sharp drop to negative is something that has […]<\/p>\n","protected":false},"author":62,"featured_media":16966,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[24,15],"tags":[1108,228],"class_list":{"0":"post-24212","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","6":"hentry","7":"category-all-news","8":"category-economy","10":"tag-oil-production"},"yoast_head":"\n