Crude prices still trade below $30 per barrel

THIS is apparently not the best of time Nigeria and other crude oil producers as the commodity’s prices dropped below $30 a barrel for the first time in 10 years.

On a more worrisome note, a recent survey by Market Realist showed that the country is among those with highest cost of production among the 13 member of Organisation of Petroleum Exporting Countries (OPEC), with about $31.60 to produce a barrel of crude.

Brent crude traded as low as $29.96 a barrel before settling down 55 cents, or 1.8 per cent, at $30.31 a barrel on ICE Futures Europe, the lowest settlement since April 2004. Brent has fallen for eight straight trading sessions, the longest losing streak since July 2014. This is coming even as the OPEC basket of 13 crude slides to 25.69 dollars a barrel. This, according to experts, would create deficit for the producing countries, making it difficult for them to meet the operational expenditures.

The producers incure one-time cost – capital expenditure on existing oil fields or a new oil field and recurring cost – operational expenditure, which constitutes the process of crude production.

Capital expenditure is the total cost associated with the exploring cost, site development of the oil field, and pipeline infrastructure development. On the other hand, operational expenditure includes lifting oil from the well, employees’ salaries, and other expenses. This will continue in 2016 because oil prices are at a 12-year low.

The phenomenal fall in oil prices led to the fall in capital expenditure from oil companies from the Europe to Middle East and Africa, and companies like, Shell, Total, BP, ONGC, Petrobras, ExxonMobil, and Chevron have reduced the capital expenditure in 2016.

Companies slashed their capital expenditures, but their operational spendings continued to rise. Already, many of the oil giants, and the indigenous producers are laying off employees. An industry expert, John Akhide, told The Guardian that the companies are in trouble, unless they move to cut every necessary expenses. “It is only the proactive ones that would be able to survive in this situation. It is a very terrible situation. The companies must think wise and look wide to tap into every necessary decision that would sustain their business at this critical period,” he said.

According to the Market Realistic’s survey, nations such as Nigeria, Libya, Angola and Venezuela have the highest aggregate cost for producing crude oil in OPEC. In contrast, Saudi Arabia and Kuwait and Iraq have the lowest total cost for producing crude oil (at about $10 on the average).

High-cost OPEC members have expressed willingness for the cartel to hold an emergency meeting to curb production. The Minister of State for Petroleum, Ibe Kachikwu had said the meeting may hold in March, even as he reiterated that Nigeria will not cut oil production outside the framework OPEC.

The EIA (U.S. Energy Information and Administration) had reported that the global crude oil production will rise to 95.9 million barrels per day (mmbpd) in 2016 and 96.7 mmbpd in 2017. The global crude oil production was at 95.7 mmbpd of crude oil in 2015. The global oil consumption is expected to average 95.2 mmbpd in 2016 and 96.6 mmbpd in 2017.

Meanwhile, the JPMorgan Chase and Goldman Sachs suggested that crude oil prices could test $20 per barrel in 2016. Royal Bank of Scotland suggests that crude oil prices could test $16 per barrel, while Standard Chartered suggests that oil prices could hit $10 per barrel in the worst-case scenario.