Strong indications emerged on Wednesday that current glut in the United States’ oil market might further dampen the prices of crude oil and refined petroleum products as this could push down the crude to as low as $20 per barrel.
The Associated Press reported that the US was running out of storage for crude oil and that the country could begin to sell from its reserves if there were changes to the law limiting the sale of the product by the country.
For the past seven weeks, an average of one million barrels of oil per day has been flowing into the country through importation and local production.
The US Energy Department reported last week that the extra crude oil flowing into the storage tanks had pushed supplies to their highest point in at least 80 years.
At the rate of inflow, it is estimated that the storage tanks could approach their operational limits by mid-April. This is known in industry as tank tops. This is expected to send the price of crude oil plummeting to as low as $20 per barrel.
The Head of Commodities Research at Citibank, Ed Morse, said at a symposium at the Council on Foreign Relations in New York that the glut could push the price of crude oil to $20 per barrel.
“The fact of the matter is we are running out of storage capacity in the US,” he said.
At that rock-bottom price, oil companies faced with mounting losses could stop pumping oil until the glut eased.
Petrol prices will fall along with crude, though lower refinery production, because of seasonal factors and unexpected outages, could prevent a sharp decline, AP reported.
However, Nigeria is not likely to benefit from the expected fall in the prices of refined petroleum products.
The principal reason is that the country lacks refining capacity as most of the products consumed locally are imported.
Following the recent fall in crude oil prices, which also lowered the prices of refined products in the international market, President Goodluck Jonathan had on January 18 approved the reduction in the pump price of petrol from N97 to N87 per litre.
The government explained that at N87 per litre, the amount of subsidy on petrol had reduced to about N3 per litre as of the date the new pump price was announced, but this subsidy amount has since climbed higher following the recent rebound in crude prices.
However, given recent developments like the inability of the government to settle the subsidy arrears owed the marketers and the differentials in the naira exchange rate to the dollar, which led to the return of queues at filling stations; it has become apparent that the reduction in price is not sustainable.
The Executive Secretary, Petroleum Products Pricing and Regulatory Agency, Mr. Farouk Ahmed, had on Tuesday told the National Assembly that the scarcity currently being experienced across the nation was caused by two rounds of devaluation of the naira carried out by the Central Bank of Nigeria in November last year and last month.
