The international oil benchmark, Brent crude, plummeted to its lowest level in more than a year on Monday, trading below the Federal Government’s benchmark for the 2020 budget, as the coronavirus outbreak hit fuel demand in China.
The 2020 budget, which was signed by the President, Major General Muhammadu Buhari (retd.), in December, was based on oil production of 2.18 million barrels per day with an oil price benchmark of $57 per barrel. The Federal Government is looking to generate N2.64tn oil revenue, which is 32.34 per cent of expected total revenue for this year, with non-oil revenue projection being N1.80tn.
Brent, against which Nigeria’s crude oil is priced, had risen above $70 per barrel early last month following the killing of an Iranian general, Qassem Soleimani, by the US on January 3. But the price, which has been on a downward trend since the coronavirus broke out last month, plunged by $2.23 to $54.39 per barrel as of 9.20pm Nigerian time on Monday. It fell below the $60 per barrel mark on January 28.
The Organisation of Petroleum Exporting Countries and its allies, led by Russia, would hold a technical meeting on Tuesday (today) and Wednesday, several weeks earlier than planned, to discuss the impact of the deadly coronavirus on oil demand, S&P Global Platts quoted OPEC sources as saying. The meeting of the Joint Technical Committee of the 23-member OPEC/non OPEC coalition, known as OPEC+, in Vienna would determine whether the full ministerial meeting scheduled for March 5-6 should be moved forward, three OPEC sources said.
OPEC+ members are in the midst of cutting 1.7 million bpd, up from 1.2 million last year, as part of a deal reached in December. The new deal is supposed to last until the end of March. After the technical committee meeting, OPEC+ ministers would then evaluate the option of holding an extraordinary meeting for which a date was still needed to be agreed, Energy Intelligence quoted sources as saying.
Originally, the next OPEC ministerial meeting was due to take place on March 5 followed by a joint session with non-OPEC producers a day later. The push to move forward the meeting is driven by OPEC’s de facto leader, Saudi Arabia, amid concerns over a $10 per barrel decline in the price of Brent.
According to OPEC delegates, one of the options being floated among producers is an additional cut of 500,000 bpd, and another option being looked at is extending the current cuts in place by another three months to June ending. Iranian Oil Minister, Bijan Zanganeh, said the spread of the coronavirus had hit oil demand and called for an effort to stabilise oil prices.
“The oil market is under pressure and prices have dropped to under $60 a barrel and efforts must be made to balance it,” he said. The coronavirus, which first emerged in the metropolis of Wuhan in China’s Hubei province, has spread to 23 countries, prompting the World Health Organisation to declare it a global health emergency.
As of Monday, reported cases of the coronavirus stood at nearly 17,501 with more than 362 fatalities. To slow the spread of the virus, China has halted domestic flights to and from several airports in Hubei. International airlines have also stopped flights to China or cut back. Beyond direct impact resulting from travel restrictions, the coronavirus is also expected to cause a further slowing of China’s economic growth, with knock-on effects for oil demand.