New Telegraph

February 25, 2024

Tough days ahead for Nigeria’s oil economy

Oil prices have begun a nosedive as second wave of COVID-19 hits Europe and United States. ADEOLA YUSUF, in this report, shows how Nigeria’s economy may pay dearly for a resurgence in COVID-19 happening thousands of kilometers away from its shores






The global oil prices fell on Friday and posted a second consecutive monthly drop.
Less than 24 hours before this news, ExxonMobil Corporation declared plans to sack 14,000 workers as rising COVID-19 cases in Europe and the United States heightened concerns over the outlook for fuel consumption.


Brent crude dropped 19 cents to settle at $37.46 a barrel, after touching a five-month low of $36.64 in the previous session.


The U.S. West Texas Intermediate (WTI) crude fell by 38 cents to settle at $35.79 a barrel, after dipping to its lowest since June on Thursday at $34.92. WTI fell 11% for the month, while Brent dropped 10%.


The big Knife

ExxonMobil Corporation announced that it would reduce its global workforce by 14,000 being the 15 per cent of the workforce by the end of 2022.


The announcement of this unprecedented culling by the North America’s biggest oil explorer was made on Thursday, October 19, 2020 as the coronavirus pandemic hits energy demand, prices, and struggles to preserve dividends.

ExxonMobil said on Thursday that it would cut around 1,900 jobs in the United States in its latest attempt to cut costs and protect its balance sheet amid low oil prices and weak global oil demand due to the pandemic.


The company had before now said it would cut 1,600 jobs in Europe as part of efforts to rein in costs.


“As part of an extensive global review announced earlier this year, the company plans to reduce staffing levels in the United States, primarily at its management offices in Houston, Texas.


“The company anticipates approximately 1,900 employees will be affected through voluntary and involuntary programs,” Exxon said in a statement on Thursday, a day before it is set to announce its Q3 earnings and a day after it kept its quarterly dividend flat for the first time since 1982.


Announcing the cuts in the United States, the oil supermajor said: “These actions will improve the company’s long-term cost competitiveness and ensure the company manages through the current unprecedented market conditions. The impact of COVID-19 on the demand for ExxonMobil’s products has increased the urgency of the ongoing efficiency work.”

From Europe with pains

Leaders in France and Germany have already ordered their countries back into lockdown, as a massive second wave of coronavirus infections threatened to overwhelm Europe before the winter.

Recently, the United States also has been facing surging cases of infections, even breaking its single-day record for new infections.

What they are saying

According to Paola Rodriguez-Masiu, Rystad Energy’s senior oil markets analyst, “many nations with high oil consumption across the world are seeing infection levels that they didn’t have even during the first wave, these infection levels are destined to bite oil demand, as traffic will be curbed to a minimum during the coming lockdowns.”

OPEC’s intervention

Meanwhile, the Organisation of the Petroleum Exporting Countries (OPEC) and allies including Russia, a group known as OPEC+, had planned to raise output by 2 million barrels per day (bpd) in January.

However, top producers of crude oil, Saudi Arabia and Russia, are favorably disposed to maintaining the group’s current output reduction of about 7.7 million bpd into next year in the face of lockdowns in Europe and rising Libyan oil output.
OPEC+ is scheduled to hold a policy meeting over Nov. 30 and Dec. 1
From World Bank’s lens

Energy price remains well below pre-pandemic levels and is expected to stabilise below pre-pandemic levels in 2021.

According  to the World Bank’s semi-annual commodity outlook, the organisation anticipates demand for oil will remain below pre-pandemic levels beyond 2021.


In the statement credited to the multi-lateral body, it tried to juxtapose the performance of energy commodities with agriculture and metal commodities.
According to the World Bank, metal and agricultural commodities have recouped losses posted due to the impact of the pandemic and are even expected to post some modest gains in 2021.


However, energy price, despite some decent recovery, remain well below pre-pandemic levels and is expected to stabilise below pre-pandemic levels in 2021.
In February/March 2020, oil price began to dip on the back of fears of price war between Saudi Arabia and Russia as well as demand concerns stemming from lockdown measures (which restricted movements) implemented to control the spread of covid-19.


As a result, oil prices dipped close to the $22/bbl support level.


However, an OPEC+ meeting in April, which led to historical cuts in crude oil supply, lent some support to oil price as Brent rallied to a $40/bbl.
While compliance to cuts have been impressive (underproduction in some countries compensated for overproduction in non-complying countries), production is gradually climbing as the cuts are being relaxed in phases in line with the April agreement.


Despite this, the same cannot be said of demand which has recovered decently but remains well below pre-pandemic levels.


According to the World Bank, tourism and travel continues to be held back by health challenges, thus  demand for jet fuel and other energy products remains.
“New Covid-19 cases in many European countries that had previously brought the pandemic under control, implies a second wave may be in swing as we enter the winter months.


“This may lead to renewed lockdown measures in different regions as countries try to limit the spread. In addition, we expect it to weigh on the minds of travellers & tourists who may be reluctant to travel as health concerns remain elevated.

Coming to N8geria


“Examining the impact on the Nigerian economy, we think an above $40/bbl Brent price remains healthy for the 2021 budget revenue projections which is critical to achieving the historic revenue numbers projected in an ambitious budget.
“However, there are grave concerns on the countries external conditions and consequently exchange rate.

“The prolonged weakness in oil prices would drag on export receipts and thus FX earnings.

Last line

“That said, we reiterate our agelong clamour for economic managers to adequately diversify the country’s export earnings particularly exploring opportunities in mining and agriculture.

“Furthermore, investments and business regulations to accelerate local industrialisation, which would foster local production of many imported products would significantly help to reduce dependence on imported products and thus conserve scarce FX.”

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