Page 4 - AfrOil Week 11 2020

AfrOil COMMENTARY AfrOil
The Central Bank of Nigeria insists that “market fundamentals do not support naira devaluation” (Photo: Dreamstime)
Nigeria under more pressure
Falling oil prices are already affecting the economy, and there is probably more trouble ahead
WHAT:
Bearish crude markets are set to bring employment levels and government revenues down.
WHY:
Local oil producers are hard-pressed to compete in the face of a worldwide supply glut.
WHAT NEXT:
Nigeria’s banking sector and credit ratings may also take a hit.
IT has been clear for more than a week now that Nigeria’s economy is certain to suffer from the drop in oil prices that has followed Russia’s scuttling of the OPEC+ production agreement and the worldwide spread of the coronavirus (COVID-19) outbreak. Officials in Abuja are trying to take appropriate measures, but they have had a difficult time staying ahead of the curve.
This essay will report on some of the responses to recent events coming out of Nige- ria’s public and private sectors. It will also take note of problems that may emerge if bearish sentiment continues to dominate global crude markets.
Unsold crude
On a positive note, Nigerian producers and traders appear to have trimmed their backlog of unsold oil.
As of early last week, the number of April-loading crude cargoes stood at 55. Reuters reported on March 13, though, that the figure had dropped to 35. It also noted that the num- ber of unsold March-loading cargoes stood at around 15, meaning that the country was still
looking for buyers for about 50 cargoes. Finding customers is not likely to be easy, a trading source told the news agency, because supplies are ample and Nigerian oil is facing stiff
competition.
Production costs
According to Mallam Mele Kyari, the group managing director of Nigerian National Petro- leum Corp. (NNPC), one way to mitigate the damage is to reduce production costs at the country’s oilfields.
Speaking at a roundtable discussion hosted by the Central Bank of Nigeria (CBN) last week, Kyari noted that the cost of extracting crude oil from local sites was now averaging $15-17 per barrel.
This does not compare favourably to coun- tries such as Saudi Arabia, which spends about $4-5 per barrel to pump oil, he said.
If Nigerian producers can bring their pro- duction expenses down, he added, they will be
more competitive on world markets because
their profit margins will be wider. He did not say exactly how upstream operators might achieve
this goal, though. 
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w w w . N E W S B A S E . c o m Week 11 18•March•2020