Ejiofor Alike with agency reports
Crude oil prices fell yesterday, with a United States crude futures contract hitting its lowest level since 1998, as concerns that the US crude storage would soon be full and bleak economic data hit sentiment.
Global benchmark, Brent was down $1.62, or 5.8 per cent, at $26.46 a barrel, while the front-month May WTI contract fell $6.22, or 34 per cent, to $12.05 at the early trading. It later crashed to negative.
BBC reported that this implies that US oil producers are paying the buyers to take the products of their hands over fears that the storage capacity could run out in May.
Reuters reported that the volume of oil held in US storage, especially at the Cushing delivery point for the US West Texas Intermediate (WTI) contract in Oklahoma, is rising as refiners throttle back activity in the face of weak demand.
Crude oil in floating tanker storage at the high seas is also estimated at a record 160 million barrels.
Weak global economic data also put pressure on prices.
The German economy is in severe recession and recovery is unlikely to be quick as coronavirus-related restrictions could stay in place for an extended period, analyst told Reuters.
However, Japanese exports declined the most in nearly four years in March as US-bound shipments, including cars, fell at their fastest rate since 2011.
Oil prices have collapsed by more than 60 per cent since January to levels well below the costs necessary for many shale drillers to break even, leading to drilling halts and drastic spending cuts.
The slump in oil price forced the federal government to cut down the 2020 budget, which was initially predicated on oil price of $57 per dollar.
The new budget proposal reduced the oil benchmark from $57 per barrel to $30 per barrel while the oil production volume was reduced from 2.18 million barrels to 1.70 million barrels.
The revenue projection for the 2020 budget was also reduced but the price has still slumped below the new benchmark of $30.
However, to reduce the excess inventory in the global market and boost oil price, the Organisation of Petroleum Exporting Countries (OPEC) and its allies, led by the Russian Federation, had agreed at a recent meeting to cut output by 10 million barrels a day (mbd) between May and June 2020, eight mbd between July and December 2020 and six mbd from January 2021 to April 2022, respectively.
In line with the agreement, Minister of State for Petroleum Resource, Mr. Timipre Sylva, said in a recent statement that the country agreed to limit its daily oil production to 1.412 mbd, 1.495 mbd and 1.579 mbd within the period in compliance with the measures to rebalance and stabilise the oil market.
He said the country would gain about $2.8 billion from its sale of crude oil in the coming months if the weakened prices of the commodity gain an additional $15 per barrel after member-countries of OPEC and its allies agreed on fresh production cut to stabilise the oil market.
Canada, the world’s fourth-largest oil producer, has begun to rein in production, but analysts said the biggest cuts lie ahead.
Meanwhile, the slump in oil price has continued to take its toll on producers with leading fracking firm, Halliburton, reporting a $1 billion first quarter loss and $1.1 billion in impairment charges yesterday as it gave a bleak outlook for North American oilfields after the coronavirus-driven oil price decline.
Last week, larger rival Schlumberger cut its dividend and recorded an $8.5 billion charge in the first quarter from writing down assets, while Baker Hughes said it would take a $1.5 billion charge, write down the value of its oilfield business and slash spending by 20 per cent in 2020.
Halliburton, which generates most of its business in North America, booked $1.1 billion in pre-tax impairments and other charges, mostly relating to the value of its pressure pumping assets. It posted a 25 per cent drop in revenue from the region to $2.46 billion, while international revenue rose five per cent to $2.58 billion.
“For the remainder of 2020, the company expects a further decline in revenue and profitability, particularly in North America,” Halliburton’s Chief Executive Jeff Miller said.
The company said it was also facing challenges related to coronavirus lockdown measures, including logistical problems from border closures and travel restrictions that have prevented the company from accessing certain facilities and sites, as well as inefficiencies from stay-at-home work arrangements.