COVID -19: Impact on Oil Prices; Implication on the Nigerian Oil Industry

Impact on oil prices

In the wake of the fight against Covid-19, many countries of the world were faced with no other option than to take drastic measures to contain the spread of the deadly virus. Most governments completely shut down their borders with heavy restrictions placed on movements, thereby impacting travel and trade. Whilst some countries have commenced the journey to recovery from Covid-19 by easing lockdown restrictions with a view to restarting and rebuilding their economies, economists have taken the view that the impact of the pandemic on many industries is likely to linger for a very long time.

For the oil & gas industry, the impact has been most felt in the steep decline in the demand for crude oil by countries around the world resulting from restrictions on vehicular movement, air travel, and economic activities. Following the cardinal economic principle that reduced demand leads to reduced prices, the fall in demand of crude oil has resulted in a slump in crude oil prices and a crude oil supply glut in the market. With many producers and market participants running out of storage capacity, prices have fallen even further as producers scramble to dispose of excess crude oil.

Speculations are that, if demand for crude oil fails to pick, the next development might be an abrupt shutdown of operations by crude oil producers, especially in countries such as Nigeria that have limited storage options available.

This newsletter examines the impact of this slide in oil prices on the Nigerian oil industry, including the players in the sector.

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