Saudi Arabia plans to unilaterally increase oil output next month, a move that could further reduce prices, reliable sources told Bloomberg. Such a move could make matters worse for oil-dependent countries like Nigeria.
PREMIUM TIMES reported how the price of crude reduced Friday after oil producers failed to agree on oil cuts at an oil producers meeting.
Members of the Organisation of Petroleum Exporting Countries (OPEC) resolved on Thursday to cut crude oil production by a combined volume of about 1.5 million barrels per day, to stop further reduction in international oil price.
The cut would have been about 1.5 per cent of current global crude oil supplies of over 300 million barrels per day.
OPEC said the burden of the cut would be shared with non-OPEC allies, led by Russia.
However, on Friday, Moscow rejected the plan and said countries were free to export as much oil as they could from March ending when the current deal ends.
Responding aggressively to the collapse of its OPEC+ alliance, Saudi Arabia plans to increase oil output next month, going well above 10 million barrels a day.
"Saudi Arabia is now really going into a full price war," Bloomberg quoted managing director for the Middle East at oil consultant FGE, Iman Nasseri, as saying.
Already, Saudi Arabia has begun to show its mettle as it, on Saturday, slashed the price it sells crude into foreign markets.
The price slash offered unprecedented discounts in Europe, the Far East, and the U.S. and enticed refiners to purchase Saudi crude at the expense of other suppliers, Bloomberg reported.
The big price slash may be an effort to force Russia and other producers back to the negotiating table.
According to the report, Saudi Arabia, the world's largest oil exporter, has privately told some market participants it could raise production much higher if needed, even going to a record of 12 million barrels a day.
Saudi production is likely to rise above 10 million barrels a day in April, from about 9.7 million a day this month, before going to as high as 12 million barrels.
"That's the oil market equivalent of a declaration of war," a commodities hedge fund manager told Bloomberg.
Nigeria makes most of its foreign earnings from oil. The current price of oil is already well below the $57 a barrel Nigeria benchmarked its 2020 budget, with planned daily production put at 2.18 million barrels.
Currently, Nigeria produces about 2 million barrels daily.
According to details on oil data site, international benchmark Brent crude slid 9.4 per cent to settle at $45.27 per barrel on Friday while Nigeria's Bonny light sold at $46.33 per barrel sliding at about 10.8 per cent.
With oil demand being overwhelmed by the coronavirus outbreak, if Saudi pumps more oil as it planned by April, oil prices will fall further, a move that could further affect Africa's largest economy.
"This is going to get nasty," Bloomberg quoted Doug King, a co-founder of the Merchant Commodity Fund. "OPEC+ is going to pump more, and the world is facing a demand shock. $30 oil is possible."
Last week, Nigeria's finance minister, Zainab Ahmed, called for a review of the budget as she said the outbreak of Covid-19 (coronavirus) negatively impacted Nigeria's oil revenue.
Already, experts fear Nigeria could slide into a recession if the price of crude continues to slide.
Between April and June 2016, Nigeria slipped into a recession caused by a critical fall in global oil price.
The oil prices fell from about $112 per barrel in 2014 to below $50 dollars per barrel in 2016.
Since Nigeria recovered from its last recession, President Muhammadu Buhari promised to diversify the Nigerian economy from being oil-dependent. That, however, is still a long way from being achieved.
Already, Nigeria's ability to cushion any effect of global oil price has been weakened as the country's Excess Crude Account dropped to about $71 million in February from over $2 billion in November 2018.
Nigeria never prepared
Reacting to the Saudi move and a potential drop in oil price, a financial analyst, Tope Fasua, said Nigeria is not prepared for the economic eventuality.
He said if the oil price gets to $30 per barrel, it may mean a recession for Nigeria because the oil sector is a major part of the economy.
"All these other countries are prepared, they have enough reserves Saudi Arabia has trillions of dollars in its reserve shelving it for it sovereign wealth fund, Russia equally has quite a bit of reserve and sovereign wealth fund.
"Already Nigerian economy is in trouble, I think that's why they intended to borrow $22.7 billion loans because the loan is for every other budget item," he said.