The international oil benchmark, Brent crude, plunged to its cheapest in 18 years on Monday as it traded around $22 per barrel.
This comes amid growing fears that the global coronavirus shutdown could last months and demand for fuel could decline further.
Brent crude, against which Nigeria’s oil is priced, fell by $2.83 to $22.10 per barrel as of 5:05pm Nigerian time on Monday. It earlier tumbled to as low as $21.76 per barrel, its lowest since March 2002.
The sharp drop in crude oil prices following the spread of the coronavirus pandemic has forced the Federal Government to propose the reduction of the oil price benchmark for the 2020 budget to $30 from $57.
With Saudi Arabia and Russia set to flood the market with oil next month, producers and shippers were said to be scrambling to lock oil up in storage as demand fell due to the pandemic.
Despite the significant reduction in its official selling prices aimed at wooing buyers, Nigeria is still struggling to sell its crude oil as Indian refiners are cutting back on output while European plants are considering closures.
The Nigerian National Petroleum Corporation was reported last week to have cut its April official selling prices for Bonny Light and Qua Iboe, two of the nation’s major grades, by $5 per barrel to dated Brent minus $3.29 and minus $3.10 per barrel respectively.
The dual shocks of the price war and the demand slump have kept oil prices under pressure, with Brent crude shedding over 60 per cent of its value.
According to analysts, the price of oil is now so low that it is becoming unprofitable for many oil firms to remain active, and higher-cost producers will have no choice but to shut production, especially since storage capacities are almost full.
Rystad Energy’s Head of Oil Markets, Bjornar Tonhaugen, said, “The oil market supply chains are broken due to the unbelievably large losses in oil demand, forcing all available alternatives of supply chain adjustments to take place during April and May.”
Goldman Sachs analysts said demand from commuters and airlines, which account for about 16 million barrels per day of global consumption, might never return to previous levels.
Collapsing oil prices are costing Nigeria and other producers not only lost revenue when they most need it to tackle the coronavirus crisis, but also market share they may never recoup, Reuters reported on Monday.
According to the report, members of the Organisation of Petroleum Exporting Countries such as Nigeria, Angola, Algeria and Venezuela cannot compete with the lower costs of Saudi Arabia and Russia, who are flooding the market.