Crude oil price fell for a fifth day thursday to its lowest since January 2019 as a growing number of new Coronavirus, known as Covid-19, cases outside of China fuelled fears of a pandemic, which could slow the global economy and lower crude demand.
China, the world’s largest energy consumer was the first to be hit by the virus, which has spread globally to over 30 nations and affected the demand for crude oil.
The plummeting price of crude oil has raised concerns about the federal government’s capacity to fund the 2020 budget as the key assumptions and parameters upon which the budget was based include crude oil production of 2.18 million barrels per day and benchmark oil price of $57 per barrel.
The global benchmark crude, Brent was down 60 cents, or 1.1 per cent, at $52.83 a barrel. It had earlier slumped to $52.53, the lowest since January 2, 2019.
In the five trading sessions through yesterday, Brent has dropped 10.6 per cent, while WTI has declined 10.4 per cent, their biggest five-day percentage losses since August 2019.
Nigeria’s N10.59 trillion budget had assumed a deficit of 1.52 per cent of the estimated gross domestic product (GDP) or N2.18 trillion to be financed through foreign and domestic borrowing.
However, with oil trading at $52 per barrel, the budget deficit will escalate above projections.
To be able to offset the revenue loss arising from the slump in oil price, Nigeria has to produce above the 2.18 million barrels of crude oil per day projection in the budget but this will be far above the country’s production quota according to the agreement by the Organisation of Petroleum Exporting Countries (OPEC).
OPEC and 10 other countries, better known as OPEC+, which includes Russia, have been reducing oil supply to support prices, agreeing in December 2019 to hold back 1.7 million barrels per day (bpd) of output until the end of March 2020.
Russia has insisted it wanted the current deal to last only until March while Saudi Arabia has been keener for the deal to last longer.
Under the deal, Nigeria is expected to export less than 1.8 million barrels of crude oil to the international market but this excludes condensates, not included in the OPEC quota.
On Wednesday, for the first time ever, the number of new Coronavirus infections outside China, the source of the outbreak, exceeded the number of new Chinese cases.
The spread to large economies, including South Korea, Japan and Italy, has caused concerns that fuel demand growth will be limited.
US President, Mr. Donald Trump, assured Americans on Wednesday that the risk from Coronavirus remained “very low.”
However, Asian share markets fell yesterday as investors feared the Coronavirus spread will disrupt the global economy as quarantines and other measures taken to halt its advance slow trade and industry.
Analysts told Reuters that if an outbreak “continues to worsen in the United States, oil prices will likely decline further.”
The United States is the world’s largest oil producer and consumer.
The crude market was also watching for possible deeper output cuts by OPEC and its allies. OPEC+ plans to meet in Vienna between March 5 and 6.