Oil futures fell further on Monday, settling above the key $20 mark, but concerns over a drop in energy demand pushed prices to their lowest finish since 2002. “Oil likely has little hope of rallying without some major production cut amongst producers, as global oil demand plunges under pressure from billions of people globally staying home to prevent the spread” of COVID-19, said Patrick De Haan, head of petroleum analysis at GasBuddy.
Demand was limited on Monday and supply risks in Nigeria rose as oil-rich states began to
institute lockdowns. A West African industry source said that disruptions to oil installations in Nigeria were increasingly likely as states in the oil-rich delta region progressively shut down. Rivers state closed all its borders and imposed a curfew last week while Delta state closed its borders and would start a lockdown on Wednesday. Meanwhile, Nigerian President Muhammadu Buhari announced a 14-day lockdown in Lagos and Abuja starting Monday night. The number of refineries cutting runs continued to grow with Turkey’s Tupras added to the list with 20-50% cuts across its various plants.
Turkey was a regular buyer of Nigerian crude but traders said they have not seen buy tenders for about a month. Canada’s 130,000 barrel-per-day Come By Chance refinery was shutting down, the first in North America. Global commodities trader Trafigura’s chief economist said oil demand could fall by more than 30 million barrels per day (bpd) in April with refinery run cuts reaching 12-13 million bpd. Collapsing oil prices are costing some OPEC members not only lost revenue when they most need it to tackle the coronavirus crisis, but also market share they may never recoup. OPEC producers such as Nigeria, Angola, Algeria and Venezuela cannot compete with the lower costs of erstwhile allies Saudi Arabia and Russia, who are flooding the market.
The Republic of Congo’s oil minister wrote to OPEC secretary general Mohammad Barkindo this month asking for urgent talks to help to keep some members from sliding into recession. But while desperate for OPEC+, the Organisation of the Petroleum Exporting Countries plus Russia, to ride to the rescue, Africa’s oil producers have little leverage. “They have no power,” one Nigerian oil industry source told Reuters. “All they can do is ask.”
Although non-OPEC nations such as Britain, Norway and the United States all have relatively high-cost production, their diversified economies mean they are not dependent on oil. As well as hitting already tight budgets, the oil price drop had led oil majors to cut billions from spending plans. The longer-term impact for these nations’ comparatively costly fields could be far more painful. “Companies are reviewing their whole portfolios on a daily basis,” said Roderick Bruce, principal research analyst for Africa at IHS Markit, which forecasts final investment decisions on the continent could hit historic lows this year.
