Crude oil prices slumped further yesterday, as the global economy continued to reel under the ravaging coronavirus. The prices, which earlier hovered around $30 per barrel crashed to $26.6 per barrel late last night before rebounding to $28 in the early hours of today.
Industry players attributed the price fluctuation to demand fears and a new supply crisis that caused the sharpest fall in oil prices in decades.
The Western Texas Intermediates (WTI) was hard-hit as its prices fell to the lowest of $26 per barrel since 2003. That same year, Brent, against which Nigeria’s crude is priced, sold for an average rate of $28.8, almost the same figure it rebounded to this morning.
The lowest parameter for that era for Brent crude was $23.2 while the highest parameter was $34.9 per barrel.
However, at 11 pm yesterday, Brent crude rose to $28 per barrel, but there were fears that this new rate may not be sustained because the economic crisis induced by coronavirus was far from being over.
Even during Nigeria’s economic recession of 2016, the average rate of Brent crude was $45 and the lowest was $27.8 while the highest was $56.8.
The current fall in oil prices followed the Energy Information Administration (EAI’s) latest weekly inventory report which estimated a two-million-barrel build for the week to March 13.
EAI had noted that at 453.7 million barrels, crude oil inventories in the United States of America (USA) were three per cent below of inventory increasing by 7.7 million barrels, analysts had predicted an inventory build of 2.94 million barrels.
Contrary to this expectation, this week, the market reported an inventory decline of 6.2 million barrels in gasoline and a fall of 2.9 million barrels in distillate fuels. This, compared with an inventory draw of five million barrels for gasoline a week earlier, and a decline of 6.4 million barrels in distillate fuel inventories.
According to agency reports, refineries processed an average of 15.8 million bpd last week, unlike 15.7 million bpd a week earlier.
The report indicated that gasoline production on the average stood at 10 million bpd, a little higher than the previous week while distillate fuel production averaged 4.7 million bpd, was almost unchanged from the earlier week.
Already, members of the Organisation of Petroleum Exporting Countries (OPEC) are pushing for urgent measures to halt price fall.
Iraqi oil minister, Thamer al-Ghadhban, asked OPEC’s head and former group managing director of the Nigerian National Petroleum Corporation (NNPC), Mohammed Barkindo, to call an extraordinary meeting of OPEC+ so as to “discuss all possible ways” to reverse the oil price slide that began after Saudi Arabia announced it was going to start raising production and cutting prices.
In a letter seen by Reuters, al-Ghadhban told Barkindo that an extraordinary meeting could help “to avoid adverse impacts on (the) short, medium and long term.”
Iraq is among the oil-producing countries most dependent on their oil revenues, so it is natural for al-Ghadhban to be the first to voice concern after Brent slipped below $30 yesterday. The OPEC basket of crude grades is also trading at a little over $30.
In response to these fluctuations in oil price, the Federal Government of Nigeria yesterday announced a reduction in the pump price of premium motor spirit (PMS), popularly known as petrol, from N145 per litre to N125.
The minister of state for Petroleum Resources, Timipre Sylva, who made the announcement after the Federal Executive Council (FEC) meeting at the presidential villa, Abuja, said that the price cut would also affect kerosene and diesel.
Noting that the price slash would be worked out by the Petroleum Products Pricing Regulatory Agency (PPPRA), the minister said that the new price regime takes immediate effect.
According to Sylva, the approval for the price reduction by President Muhammadu Buhari was a direct consequence of the falling oil prices at the international market due to the spread of the deadly coronavirus which has been declared a pandemic by the World Health Organisation (WHO).
Crude oil prices recently crashed from $60 to $30, causing rising fears of a possible global economic crisis.
Sylva said that going forward the government would allow the international prices of crude to determine the prices of the finished products in the country.
He announced the price cut after he took time off from the weekly FEC meeting to consult with members of the organised labour in the oil and gas sector.
Last weekend, the minister had hinted of a possible reduction in the pump price of fuel following the tumbling prices of crude at the international market.
“This is a developing issue. We are still consulting; we are still following it closely. Of course, usually, the product prices follow the crude oil price but we are still consulting, we’ll get back to you, please, be patient,“ he had told State House correspondents last Friday.
While announcing the cut in fuel price yesterday, Sylva said: „The drop in crude oil prices has lowered the expected open market price of imported petrol below the official pump price of N145 per liter.
“Therefore, Mr President has approved that Nigerians should benefit from the reduction in the price of PMS which is a direct effect of the crash in global crude oil prices.
“In view of this situation, based on the price modulation template approved in 2015, the federal government is directing the Nigerian National Petroleum Corporation (NNPC) to reduce the ex-coastal and ex-depot prices of PMS to reflect current market realities.
“Also, the PPPRA shall subsequently issue a monthly guide to NNPC and marketers on the appropriate pricing regime. The agency is further directed to modulate pricing in accordance with prevailing market dynamics and respond appropriately to any further oil market development.
“It is believed that this measure will have a salutary effect on the economy, provide relief to Nigerians and would provide a framework for a sustainable supply of PMS to our country. The Ministry of Petroleum Resources will continue to encourage the use of compressed natural gas to complement PMS utilization as transport fuel.“
Accordingly, the NNPC yesterday directed all its retail stations nationwide to change their retail pump price of PMS to N125 per litre.
In a statement it issued last night, the corporation said that the directive was in compliance with that of Sylva.
The corporation noted that it had reviewed its ex-coastal, ex-depot and NNPC retail pump prices accordingly.
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