…SEPLAT Boss says Nigeria must reset economic landscape, over Dwindling oil revenue***
Oil prices slid for a second consecutive session on Thursday as the U.S. industry data showed a steep and surprising build-up in crude stockpiles, dampening hopes of a smooth demand recovery as the world begins to ease its way out of coronavirus lockdowns.
The decline extended losses from Wednesday on uncertainty about Russia’s commitment to deep oil production cuts in the lead-up to a June 9 meeting of the Organisation of the Petroleum Exporting Countries and its allies, dubbed OPEC+.
The U.S. West Texas Intermediate (WTI) crude futures were down 4.4 per cent, or $1.44 at $31.37 a barrel at 0402 GMT after slipping as much as five per cent to a low of $31.14 earlier in the session.
Brent crude futures dropped 3.2 per cent or $1.10 to $33.64 per barrel.
“A surprise to consensus API (American Petroleum Institute) inventory build (data) and fear of Russia turning up production weighs on oil prices,’’ said Stephen Innes, Chief Global Markets Strategist at AxiCorp.
“As is often the case during a run-up up to an OPEC+ meeting, the focus is squarely on Russia’s commitment and understandably so as historically they have been the laggard within the OPEC+.’’
Data from the U.S. industry group API showed crude stocks rose by 8.7 million barrels in the week to May 22, compared with analysts’ expectations for a draw of 1.9 million barrels.
Gasoline stocks rose by 1.1 million barrels, more than 10 times the build analysts had expected, and stocks of diesel and heating oil rose by 6.9 million barrels, nearly four times as much as anticipated.
“It just indicates that demand recovery is progressing but it’s not strong enough yet to be really self-sustaining,’’ National Australia Bank’s Head of Commodity Research, Lachlan Shaw, said.
The market will be looking to see if data from the U.S. Energy Information Administration later on Thursday matches API.
With WTI holding above $30, OPEC+ will be closely watching to see whether the U.S. oil shale oil producers, who have breakeven prices in the high $20 and low $30 dollar range, step up production.
In the meantime, the Chief Executive Officer, Seplat Petroleum Development Company Plc (SEPLAT), Dr Austin Avuru has stressed the need for Nigeria to reset its economic landscape, due to the crash in global crude oil prices.
Avuru spoke at on Wednesday at a webinar organised by the Nigerian Association of Petroleum Explorationists (NAPE).
It had the theme: ”New Normal: Post COVID-19 for the Nigerian Oil and Gas sector.”
He said current realities had shown that oil revenue was trending downwards below 45 per cent as a percentage of total federal revenue for 2020.
According to him, this is unlike in the past where revenue from oil accounted for 80 per cent of federal revenue and 92 per cent of foreign exchange.
The SEPLAT boss noted that there had been price shocks in the past, including the recent one in 2016 where crude oil price went as low as $26 per barrel before it rebounded.
“However, this is different because this time around we have a combination of a surprise shock with unprecedented demand drop and a global economic meltdown.
“This time, because there was a global pandemic that led to a global economic meltdown, some 25 million barrels per day of demand was cut out.
”It also came at a time when there was a struggle for market between the shale in the United States on one hand and Russia and Saudi Arabia on the other hand that led to supply shock.
“So we had an unprecedented situation where prices actually went negative even though it was just for a few hours.
“We are looking toward a new normal of very low oil prices, somewhere between $40 to $50 per barrel. We will be lucky if it gets to $60, “Avuru said.
He said according to projections, it would be difficult for oil prices to rise to what Nigeria and other countries used to know, as there was also competition from Shale and other renewable sources of energy.
Avuru said the situation had made it imperative for the Nigerian government to intensify efforts to diversify the nation’s economy.
He said the economic readjustment should be focused on gas as enabler for domestic energy security and catalyst for industrial growth, minerals, mining and agriculture as additional Forex earners.
Avuru also urged operators in the oil and gas sector to explore various ways to transform their portfolios in order to stay afloat during these critical times.
He said: “There has to be regional market capture. So the refineries and petrochemical plants like Dangote have to target the entire West African region for selling of their products.
“Those of us who are in the gas business should take advantage of the West African Gas Pipeline with the hope to deliver the gas that will power the entire region.
“The same thing with Liquefied Petroleum Gas. All of these regional markets we now have to capture, as part of our survival strategy.”