More frightening was that the Bloomberg data revealed that the world’s cheapest oil is already close to $20 in non-OPEC countries as against $35 in OPEC states.
Latest data by Bloomberg yesterday noted that prices were sliding in non-OPEC member countries because OPEC member states in economic turmoil want higher prices without having to cut their own production, relying instead on Saudi Arabia to be a ‘swing’ producer.
OPEC, rising from its meeting on December 4, in Vienna, Austria, had decided to maintain crude oil output despite pressure to cut production to ameliorate the effects of the plummeting prices on member countries’ revenues.
OPEC has always insisted on maintaining crude oil production, saying it could only agree to cut production if non-OPEC members would be willing to do the same.
Nigeria’s
oil minister and OPEC president until last week, Emmanuel Kachikwu, had
disclosed after the Vienna meeting that the group considered cutting
production but decided that a reduction “even of five per cent” was not
likely to push prices higher if non-OPEC producers, which make up about
two-thirds of global production, do not join in cutting.The decision was contrary to expectations from Nigeria and other OPEC members that the organisation would reduce production output to boost crude oil prices which have been on the downward trend since June last year.
Goldman Sachs, one of the most influential banks in commodity markets, also recently said that oil could fall to as low as $20 per barrel amid fears that the world is running out of storage capacity.
In its statement on the global crude oil crash penultimate Friday, the International Energy Agency (IEA) corroborated both reports, saying that the global supply glut was likely to deepen next year and put more pressure on prices.
According to the Bloomberg data, a blend of Mexican crude plunged 73 per cent in 18 months to $28 on December 11, its lowest level since 2004.
There was also Iraq offering its heaviest variety of oil to buyers in Asia for about $25, while in western Canada, its crude has slumped 75 per cent to $21.37, the least in almost eight years.
Apart from Western Canada Select, which is heavy and sulphurous, other varieties, including Ecuador’s Oriente, Saudi Arabia’s Arab Heavy and Iraq’s Basrah Heavy were selling below $30, the data showed.
Venezuela is also not insulated as it is experiencing similar lows.
“More than one-third of the global oil production is not economical at these prices,” Ehsan Ul-Haq, senior consultant at KBC Advanced Technologies Plc, said by e-mail.
Oil has slumped to levels last seen in the global financial crisis in 2009 amid a global supply glut, but the data underlined that while the prices of benchmarks, West Texas Intermediate and Brent, hover in the $30s, they represent a category of crude — light and low in sulphur — that is more highly valued because it is easier to refine.
But the data showed that some producers of thicker, blacker and more sulphurous varieties have suffered heavier losses and were already living in the $20s.
Global benchmark Brent slid 5 cents to $37.87 a barrel on the London-based ICE Futures Europe exchange at 11:38am Singapore time. WTI was unchanged at $36.31.
Even at that, oil prices from OPEC, which supplies about 40 per cent of the world’s crude, are trading below the main two benchmarks.
The daily price of 12 crudes produced by OPEC stood at $33.76 a barrel on Monday, the lowest in seven years.
The prices of both benchmarks have fallen every day since OPEC, on December 4, abandoned its output ceiling.
OPEC has been pumping near record levels since last year in an attempt to drive higher-cost producers such as United States shale firms out of the market.
Bloomberg had also noted that, in the past six sessions, oil prices have shed more than 13 per cent each due to the glut that followed the cartel’s action.
In addition to the current excess inventory in the global oil market, which is estimated at 1.5 million barrels per day, new supply is likely to hit the market early next year as Iran ramps up production once sanctions are lifted.
The imminent lifting of sanctions against the country followed the July agreement on its disputed nuclear programme.
Iran’s crude oil exports are set to hit a six-month high in December as buyers ramp up purchases in expectation that sanctions against the country will be lifted early next year, Reuters quoted an industry source as saying.
On Friday Gulf, producers and Russia have said they would not cut output even if prices fell to $20 per barrel, also due to the low cost of production in those areas.
But in Nigeria, the average cost of production by the International Oil Companies (IOCs) is about $30 per barrel, thus making it difficult for Nigeria to sustain production in a very low price regime of $30 and below.
The drop in the global benchmark Brent crude to $39 per barrel yesterday is threatening the yet-to-be-presented N6 trillion Nigeria federal budget for 2016. The Federal Executive Council (FEC) approved the budgetary amount at its meeting on Monday, with a proposal for $38 per barrel as the oil benchmark price, down from $53 this year, 2015.
The Excess Crude Account, into which the country saves the difference between the market price of oil and the budget benchmark to provide a cushion when oil prices fall or extra cash is needed for spending on infrastructure, has been depleted in recent times as oil revenues plunged.
The account, which stood at about $4.11billion in October 2014, dropped to $2.45 billion in December that year, down from about $3.11 billion in November. The balance in the ECA was put at $2.1 billion in July this year.
We’re studying the situation – NNPC
Top officials at the NNPC informed LEADERSHIP that the corporation is keenly studying the situation and would advise the federal government on the way forward, even as he said the bench -mark pegged for the crude oil in the 2016 budget cannot be altered.
Experts urge FG to seek alternative funding for budget
…Says oil benchmark can be retained
As crude oil price yesterday fell to $20 a barrel, the federal government has been advised to seek alternative means of funding the budget, which is largely based on revenue from oil price benchmarked at $38 a barrel.
Speaking with LEADERSHIP last night, industry analyst, Dan Kunle, advised that the $38 benchmark could be retained, but said the budget spread sheet can be tinkered with by the Ministry of Finance to reflect the daily changes in the price of oil.
He explained that it will be unrealistic to have the National Assembly change the benchmark of oil price every day or week the price of oil changes at the international market, saying that this will alter the nation’s budget planning mechanism.
He noted that the “benchmark can be left at the current price but the budget spread sheet can be tinkered with to reflect current reality. The finance ministry can copy the president, the Senate president and Speaker of the House on the actual price as it changes.
“Our headache now should be how to seek alternative source of funding, specifically cheap loans and growing locally generated revenue, like tax and import duty.”
While noting that it will not be a palatable 2016 for Nigeria, Kunle said the oil price issue is caused by a cold war between the US and Russia and Iraq and Iran, and could take long in stabilising.
He said while the US is not perturbed by cheap oil prices as that will allow it buy cheap oil from other nations and grow its reserves, countries like Nigeria are bearing the brunt of the problem.
He, however, advised that government must consider taking loans to fund catalytic projects like railways, roads and pipelines, rather than social projects.
Another expert, Joey Amadi, a retired banker, wondered why the oscillation in crude oil prices should be a problem.
For him, no country will be free if oil prices are abnormally low. He believes the average of the year will be more robust than the less than $38 which was adopted.
“We should just wait, pray, and we are out of it,” he said.
Kachikwu begins massive crackdown on pipeline vandals
Following President Muhammadu Buhari’s directive for zero tolerance to crude oil theft and pipeline vandalisation, and the measures put in place by the minister of state for petroleum and group managing director of the NNPC, Dr Ibe Kachikwu, 20 pipeline vandals have been arrested by a combined team of Nigerian Navy, the Army and other security agencies collaborating with the NNPC/PPMC to monitor and patrol the pipelines.
The Pipelines and Products Marketing Company (PPMC) said the suspects were intercepted by a patrol team between the Atlas Cove and Mosimi depot.
The PPMC said the 20-man syndicate was specifically smashed at the Ilado/Ilase pipelline axis.
“Between the Atlas Cove and Mosimi depot, a team of Nigerian Navy, the Army and other security agencies collaborating with the NNPC/PPMC apprehended a 20-man syndicate group which included a woman.
“These are notorious members of a gang engaging in pipeline vandalisation and product theft along the Ilado/Ilase pipeline axis. Also confiscated from the vandals are two Hilux trucks, with thousands of jerry cans filled with petroleum products, equipment and several generators.
“The suspected vandals have been taken into custody at the Nigerian Naval Base, Western Command, Apapa, and are awaiting further interrogation.” (LEADERSHIP NEWSPAPER)
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