The ongoing oil price war following the collapse of the pact between Russia and Saudi Arabia has forced global oil producers to immediately implement measures to counteract the falling oil prices. Africa's largest oil producer, Nigeria, announced that it will be ramping up its production and offering massive discounts to retain its customers amid the global demand and price slump.
Caught the crossfire in the conflict between Russia and Saudi Arabia, two of the world's largest oil producers, Nigeria announced that it will be pumping oil at maximum to retain its market share. Nigerian oil minister, Timipre Sylva, also stated that the country will have no other choice but to offer discounts on its oil even if it will result in a dramatic drop in profits.
Like the United States and other oil-producing countries, Nigeria has called on Russia and Saudi Arabia to quickly find a resolution to their conflict in order to bring oil prices back up to normal levels. The call by the oil-producing countries was particularly targeting Saudi Arabia, which announced that it would be flooding the market by increasing its production to as much as 12.3 million barrels per day next month.
Even at a discounted price of $3 per barrel compared to the Dated Brent, industry experts predict that Nigeria may have a hard time selling all of its stocks next month. Nigeria announced the discounts earlier in the month for both its primary crude grades, namely its Qua Iboe and Bonny Light oils.
In a rush to counteract the continually falling global oil prices, which has been exacerbated by the decrease in demand for the fuel due to the coronavirus epidemic, oil producers around the globe have all been heavily discounting their crude. The epidemic, which is rapidly spreading across Europe and the United States, has crippled the aviation and transportation industry, resulting in a decreased demand for fuel.
Among the other oil-producing countries, Nigeria will be the most vulnerable. According to Fitch Ratings, Nigeria currently has a higher breakeven oil price, essentially the threshold required to turn a profit based on the government's budget in extracting and processing the resource. The country's breakeven oil price currently stands at $144 per barrel, the highest among the major oil-producing countries including most Middle Eastern counties.
The Atlantic Council's Africa Center estimates that Nigeria could stand to lose more than $15.4 billion in revenues if the price of oil remains at around $30 per barrel this year. Oil production currently accounts for about 10 percent of the country's gross domestic product (GDP). However, revenues generated by its oil business does account for roughly 57 percent of the government's annual budget.