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Caught in the Saudi-Russian oil price war, Africa’s largest oil producer, Nigeria, has discounted deeply its crude and aims to pump as much as it can, trying to retain customers in the unprecedented demand plunge.
However, the price to pay in the oil price war may be too steep for Nigeria.
Right now, Nigeria’s only response is to discount its oil and to pump oil at maximum levels possible, the country’s petroleum, minister Timipre Sylva, told Bloomberg in an interview.
Africa’s largest producer also calls for Saudi Arabia and Russia to end the price war and welcomes U.S. appeals on OPEC’s leader Saudi Arabia to rethink its strategy of flooding the market with oil starting next week.
Earlier this month, Nigeria discounted its primary crude grades Qua Iboe and Bonny Light and will be selling them in April at a $3 per barrel discount to Dated Brent. Even at the steepest discount in decades, Nigeria may be unable to sell all its April cargoes, traders told Bloomberg this week, as oil demand plunges and other oil producers are also heavily discounting their crude.
Nigeria’s position in the oil price war is not very strong as most of its export earnings rely on crude oil sales.
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According to Fitch Ratings, Nigeria’s breakeven oil price – the oil price required to balance the government's budget, all else being equal – is $144 a barrel, the highest among major oil producers in the Middle East and Africa, including Saudi Arabia, Bahrain, Oman, Kuwait, Abu Dhabi, and Qatar.
The demand destruction and the low oil prices will hit many African oil producers, with Nigeria leading the pack with estimated revenue losses of US$15.4 billion at $30 oil this year, estimates from the Atlantic Council’s Africa Center showed this week.
Oil accounts for just 10 percent of Nigeria’s gross domestic product (GDP), but it is responsible for 57 percent of government budget revenues.
“Oil also accounts for 94 percent of exports and a similar percent of foreign
exchange earnings. Thus, government coffers will be hit harder than GDP, and as a result, public services in oil producers will be constrained, just as these countries scramble to shore up their health and education sectors in response to the virus,” Luke Tyburski, project assistant with the Atlantic Council’s Africa Center, wrote.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.