Although the price of crude oil inched down, a dollar or more, below $70, this past week, standing on a $40 per barrel-driven budget benchmark for the year, the economy is ‘supposedly’ on an estimated $20 safe grounds. That safe grounds are still large and wide enough to accommodate the fuel price increase/subsidy removal brouhaha. However, what is unsettling to managers of the nation’s oil industry is the decline in the rig count. The revenue to be generated to fund the 2021 budget, is mounted on 1.8mbpd oil production. With a year-on -year drop by 27.8per cent to 135 in 2020, from 187 in 2019, and a whopping 70per cent fall in exploration and production from the 23 recording in the same period last year, to only seven in 2021, there is cause for panic. At this rate, can revenue expectations meet budget deliverables? Chris Paul reports
At the time the price of crude oil hit the $70 per barrel boundary, before its snail slide within the $60s valley, a visibly uncomfortable Minister of State for Petroleum Resources, Timipre Sylva, quickly went on air to alert Nigerians on the negative impact of an otherwise great news.
He warned of the imminent increase in the price of fuel that will arise from the upward climb in the global price of crude oil.
Since that announcement, the nation has been plunged into her macabre dance on the slippery, but highly combustible petro-platform.
Though that initial chaos fuel scarcity, queues and crisis seem to have simmered in the past few days; this is consequent upon the price gaffe by one of the agencies under the same ministry and the rancorously raucous response by all involved and all affected by the Petroleum Products Pricing Regulatory Agency (PPPRA) overzealous announcement.
Even this, with all its problems is not really the cause of the fear gripping the government at this time.
What may be causing the managers of the nation’s economy, sleepless nights is the fact that the means to accomplish the mission to producing the $1.86 mbd on which the 2021 budget is planted have greatly depleted.
There are indications that oil exploration dropped in Nigeria by 70per cent, in February 2021, according to the Organisation of Petroleum Exporting Countries, (OPEC).
A major indicator of exploration, and production, Nigeria’s rig count, according to its March 2021 report, was put at seven.
Compared to the 23, recorded in the same period of 2020, it shows a 70per cent drop.
Some of the factors, according to industry watchers, that could explain this disturbing developments can be attributed to the prolonged Coronavirus pandemic, lockdown, reduced demand, low prices, and by extension earnings; which have limited the capacity of many companies to execute their capital projects.
However, a deeper reading of the OPEC’s report reveals that for 2021, world oil demand is expected at 5.9 mb/d, to stand at 96.3 mb/d. Oil requirements in the first half of 2021 are adjusted lower, mainly due to extended measures to control COVID-19 in many key parts of Europe.
Additionally, elevated unemployment rates in the US slowed the recovery process.
“In contrast, oil demand in 2H21 is adjusted higher, reflecting expectations for a stronger economic recovery with the positive impact of vaccination rollouts.
In regional terms, OECD oil demand is expected to increase by 2.6 mb/d in 2021 to stand at 44.6 mb/d, while non-OECD demand is seen rising by 3.3 mb/d to average 51.6 mb/d,” the report stated.
The report averages non-OPEC liquids production at 62.9 mb/d in 2020, which is a contraction of 2.6 mb/d, y-o-y.
It further stated that Non-OPEC oil supply in 2020 declined in Canada, Colombia, Kazakhstan, Malaysia, the UK, and Azerbaijan, but increased in Norway, Brazil, China, and Guyana.
According to the report, non-OPEC liquids supply for 2021, will grow by almost one million mb/d to average 63.8 mb/d.
“The US liquids supply forecast remains unchanged, with the growth of 0.16 mb/d in 2021, although uncertainties persist.
The main contributors to supply growth are expected to be Canada, the US, Norway, Brazil, and Russia. OPEC NGLs are forecast to grow by 0.08 mb/d in 2021 to an average of 5.2 mb/d, following a decline by 0.13 mb/d last year,” the report stated.
OPEC crude oil production decreased by 0.65 mb/d, m-o-m, in February, to average 24.85 mb/d, according to Industry sources.
Oil prices, meanwhile, inch lower as Crude inventories continue to build.
This may explain why oil prices headed southward, as more countries in Europe suspended the use of the AstraZeneca vaccine on blood clotting concerns, pushing back further Europe’s return to normal.
Not even the record vaccination rates in the United States have been enough to arrest the slide amid continued warnings from medical experts that the U.S. is not out of the woods and any premature relaxation in movement restrictions could lead to another spike in new infections.
As at the end of this past week, Brent crude traded at $68.03 a barrel, with West Texas Intermediate at $64.55 a barrel.
According to the Energy Information Administration (EIA), a crude oil inventory build of 2.4 million barrels for the week to March 12, up/down from a build of 13.8 million barrels was reported for the previous week.
The American Petroleum Institute (API) surprised markets, a day before, when it estimated oil inventory decline of million barrels; for the same week.
Sequel to the wave of Arctic weather that swept across Texas, which prompted refinery closures and stocking up of oil, gasoline and distillates; huge builds in both crude and fuel inventories were expected in the past three to four weeks.
Meanwhile, the EIA reported an inventory increase, in gasoline, for last week, at half a million barrels. This compared with a draw of ask much as 11.9 million barrels for the previous week.
Compared with nine million bpd a week earlier, Gasoline production stood at 8.9 million bpd last week.
An inventory build of 300,000 barrels, in middle distillates, was recorded for the week to March 12; thus comparing with a decline of 5.5 million barrels for the previous week, which happens to be the second largest weekly draw in a row; after a 9.7-million-barrel decline in inventories in the first week of March.
Middle distillate production averaged 4.2 million bpd last week, compared with 3.7 million bpd a week earlier.
At the midstream level, and operating at 76.1 percent of capacity, Refinery processing rates averaged 13.4 million bpd last week, as opposed to 12.3 million bpd a week earlier.
Unfortunately, a major oil producing nation, Nigeria’s refining capacity is not captured in this global data of downstream statistics because of its dead refineries.
The consequences of that is the emotional paradox, the country must experience in relation to price fluctuations in the global crude oil market.
In other words, when her fellow OPEC members are clinking glasses in celebration of a price rise in the sale of crude oil, Nigeria sits and sulk in one corner, and perhaps drunk to stupor, reminiscing over the tragedy the sweet increase may brought onto the downstream sector of her oil and gas industry back home.