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Oil prices rise as COVID-19 lock-downs start to ease
Oil prices have climbed up in recent times driven by relaxed coronavirus restrictions and lock-downs in some countries which have allowed some businesses and factories to resume operations. The market was also supported by Saudi Arabia’s decision to further deepen its output cut. Rolake Akinkugbe-Filani, Managing Director of Energyinc Advisors joins CNBC Africa to focus on the global oil market and its implication for Nigeria.
Thu, 14 May 2020 11:46:03 GMT
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AI Generated Summary
- Oil prices rise due to relaxed coronavirus restrictions and Saudi Arabia's output cuts, impacting global market
- Challenges for Nigeria include plummeting oil demand, revised budget benchmark, and fiscal adjustments
- Global uncertainties, including a possible second wave of the pandemic, add to the bleak outlook for oil markets
The global oil market has been experiencing fluctuations in recent times due to relaxed coronavirus restrictions and lockdowns in some countries, allowing businesses and factories to resume operations. Saudi Arabia's decision to deepen its output cut has also supported the market. Rolake Akinkugbe-Filani, Managing Director of Energy Inc. Advisors, shared insights on the implications of these developments for Nigeria, highlighting significant challenges the country is facing in the oil sector.
With oil prices hovering around $29 a barrel, close to Nigeria's revised oil benchmark of $30 a barrel, the country is navigating treacherous waters. Akinkugbe-Filani emphasized the importance of addressing the new normal in oil prices as global demand is expected to plummet by nearly 9 million barrels per day, according to the International Energy Agency.
The ongoing cuts by oil producers, including an additional 1 million barrels per day reduction by Saudi Arabia, have aimed to stabilize the market. However, challenges remain as storage capacity reaches its limits and inventories continue to build up, impacting the effectiveness of these cuts. Akinkugbe-Filani highlighted the importance of balancing supply and demand dynamics to reverse the downward trend in oil prices.
Amidst uncertainties in global demand, particularly with major consumption markets still grappling with the effects of the pandemic, the outlook for the oil sector remains bleak for the second quarter of 2020. The possibility of a second wave of the coronavirus could further disrupt oil markets and lead to long-term shifts in consumption patterns and transportation dynamics.
Nigeria, in response to the economic crisis, has revised its budget benchmark for oil to $25, reflecting the significant impact of falling oil prices on government revenues. With production costs ranging from $15 to $30 per barrel, there are growing concerns about the sustainability of the oil sector in Nigeria. The country's fiscal adjustments, including a 25 percent cut in capital spending and an IMF relief package of $3.7 billion, are insufficient to cover the estimated $7 billion needed to address the crisis.
Despite these challenges, there are signs of optimism for Nigeria's oil industry, such as the final investment decision by Niger LNG on a new train 7, indicating continued investments in the sector. As the country navigates through tough economic waters, strategic decisions and long-term planning will be crucial to mitigate the impact of volatile oil prices and ensure economic stability.
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