Lagos — Oil-producing economies are heading towards recession as oil price slides to $23 per barrel. International oil benchmark, Brent crude, plunged to its lowest in 18 years at around 12 pm Nigerian time on Tuesday as it traded around $23 per barrel from a previous close of $22.
The crash in price comes as panic from the COVID-19 pandemic hits the world, sending oil-depending countries reeling in low revenues due to low demand for their oils.
Following the sharp drop, the federal government of Nigeria propose reduction of the oil price benchmark for the 2020 budget to $30 from $57.
Saudi Arabia and Russia will flood the market with more oil next month after OPEC cut talks with Russia failed.
Now, producers and shippers are said to lock up their oils in storage pending time when demand will rise however, countries like Nigeria who produce light sweet oil, the one in demand by the aviation sector currently witnessing decline due to the pandemic, may have troubles storing as their grades cannot withstand long storage.
Goldman Sachs analysts said demand from commuters and airlines, which account for about 16 million barrels per day of global consumption, might never return to previous levels.
As the race gets toughened, oil economies were forced to reduce official selling prices way below dated Brent to woo buyers. Indian refiners are cutting back on output while European plants are considering closures.
Nigeria’s state oil company, NNPC, last week slashed its April official selling prices for Bonny Light and Qua Iboe, two of the nation’s major grades, by $5 per barrel to dated Brent minus $3.29 and minus $3.10 per barrel respectively.
Brent has now shed over 60 per cent of its value.
Rystad Energy’s Head of Oil Markets, Bjornar Tonhaugen in an interview with Reuters said, “The oil market supply chains are broken due to the unbelievably large losses in oil demand, forcing all available alternatives of supply chain adjustments to take place during April and May.”