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Effect of coronavirus on oil prices

Coronavirus

Nigeria’s 2020 budget is based on a daily oil production of 2.18 million barrels benchmarked at $57 per barrel. Inadvertently, our crude is priced against Brent which has risen by over 5 percent during the fracas between US and Iran. Few weeks ago, the US President, Donald Trump, ordered the killing of a top Iranian commander, Qassem Soleimani, in Iraq. The general’s death in Iran sent a signal of war and almost immediately Iran delivered missile raids against two Iraqi bases housing US troops. At the moment, the US has refused to make it a cyclical pattern of attacks, which thrilled most peace lovers in the world.

The heighten concerns was when coronavirus sprouted out like a spruce in Wuhan and thousands of lives have been lost.  The truth is, this pandemic has hit the world like a weapon of mass destruction.

Like the proverbial sword of Damocles, the monster of corruption dangles over our nation’s soul, this was what happened when the oil price hit $140 few years back, what can we point at that we were able to achieve with the windfall in terms of social infrastructure?

One important reason why we don’t have to overly celebrate whenever there is oil windfall is because we are an import-dependent nation, particularly refined petroleum products, and part of the revenue from the oil price hike evaporates through import fees and subsidy payments.

No one can predict the future as the international oil benchmark continues to dwindle like the candle controlled by the wind,  the Brent crude plummeted to its lowest level … to $45 per barrel, the lowest for years as the coronavirus outbreak hit fuel demand in China. That is a major reason why we must always be prepared for the dry season.

Again, as at 10th March, Brent crude oil prices fell to approximately $33 per barrel (bbl) making it the worst of its kind decrease in a day since 1991. The big brother in OPEC, Saudi Arabia who has the capacity to pump out more barrels and its erstwhile non-OPEC ally, Russia failed to agree on proposed oil production cuts.  This inability to agree on terms is fuelling the fire of decline in prices of oil and that is why the constant prayer for us to diversify our forex revenue whose 85% still comes from oil export.

It was put more appropriately in my write-up titled, ‘Local Refinery- A Knot Difficult to Untie’ published by ThisDay on August 2, 2019 that, “Fuel importation is like a sharp needle to a balloon in any economy. The earlier we fix our refineries the better we can have relief over us like cold water filling a thirsty gullet.”

The excruciating effect of coronavirus on our economy is obvious; we are consistently losing billions of Naira daily. How long are we going to experience low oil prices?  No one knows but this is an opportunity to deregulate our downstream sector and reform the excess crude account. This is an opportunity to stop refurbishing and start rebuilding a new refinery all over again. It requires a lot of political will to do but with a fund of courage on the part of President Buhari it is feasible.

Olusanya Anjorin writes from Lagos (olusanyaanjorin@gmail.com)

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