The global novel coronavirus pandemic is taking an immensely heavy toll on nations all across the world. As of now, over 2.5 million people have contracted the virus in roughly 210 countries and territories in different parts of the planet. The virus initially started in China’s Hubei province, which is home to more than 58 million people. Yet, today, it has spread all across the world as the global death toll nears 200,000.
However, the real impact, besides the human cost, is the upcoming major recession of a scale not witnessed since the great depression. The US crude oil price crashed below 0 for the first time in history as consumption plummets amid the ‘stay at home’ orders in the United States and beyond. Running out of the storage, oil-dependent nations are cutting back on production ahead of the OPEC schedule 2020. Saudi Arabia, previously aiming to maintain a normal production pace is the first country to announce major cutbacks.
How did it all start?
Many countries were initially not worried about the potential global spread of the infection. Some others were afraid that restricting the economy for a few days or weeks would be detrimental to the nation. Yet, now we are witnessing countless countries under strict lockdowns with stranded economies on every continent.
Wuhan, the city of over 11 million is the capital of China’s Hubei province. This is where the outbreak began, as well as the first area globally to be put under lockdown. Hubei is a major manufacturing and commercial center for China, thus, the economic impact on the overall output was devastating. Other nations could already see what was to come if the virus spread into their territories.
Soon, the new coronavirus infection spread across Asia, followed by the first recorded European case in Bordeaux, France, as well as other nations on the continent and across the Atlantic. Italy soon became the global epicenter of the pandemic as it remains one of the most affected countries on earth. However, as of now, Spain has recorded the most cases in Europe while the United Kingdom is reporting more new cases than any other nation on the continent. Moreover, Boris Johnson, the British prime minister is still recovering from COVID-19 after testing positive and spending a few nights in intensive care at st. Thoma’s hospital in central London.
Coronavirus in the United States and its impact on oil prices
The United States overtook all other countries in terms of the number of infections almost overnight. President Trump remained hesitant to introduce further restrictions, regulations, and curfews up until a very critical point. More than 800,000 have contracted the virus across the nation with the Eas coast and more particularly New York being the most affected. Here, more than 1 per 100 persons have tested positive for COVID-19.
After lots of criticism from the democratic party, as well as some republicans and the international media and community, further restrictions were implemented in the United States. Although many people believe the government acted too slowly as the total number of infections nears 1 million.
What has the biggest impact is that people are ordered to stay home under almost all circumstances. Thus, the overall mobility of people, as well as economic activity is highly restricted. Consumption of different products and services has plunged. However, oil is the most affected product on the shelf as Americans, as well as residents of other nations, are driving less and less.
US oil prices affecting Nigeria
WTI crude fell below $0 for the first time in history. What does that mean? The consumption and demand are so low that it is simply not selling while oil-producing companies keep extracting the black gold. As a result, there is no storage left to keep enormous amounts of oil safe and sound. Under such circumstances, companies are doing everything to get rid of some crude or to at least find further storage capacity.
Yet, this is not having nearly as big of an impact on the United States as on other oil-reliant economies. Nigeria is one of the poorest countries on earth. The corruption thriving across the nation, as well as the undemocratic government, has prevented significant economic growth throughout the past decades.
Nigeria is highly oil-dependent. The government relies heavily on oil-generated incomes, which accounted for roughly 60% of the revenue. Moreover, it as well represents 90% of the total external trade for Nigeria. In this situation, obviously, a nation that does not have a diversified economy and is solely dependent on oil will struggle. Yet, the case for Nigeria is even worse amid its poverty and underdevelopment.
The late oil slump particularly dangerous for the nation as the United States remained its prime export partner. Hundreds of thousands of barrels are exported across the Atlantic each and every day, driving the country’s economy. Nigeria has been enjoying steady economic growth lately, forecasted to become the leader on the continent. However, many believe that this growth story has ended with this unprecedented US oil slump.
According to the International Monetary Fund (IMF), Nigeria needs whopping $144 per barrel income to balance its budget. This is one of the highest numbers. Moreover, the nation is expected to hold over 50 million barrels of oil in storage by May which will represent a major challenge for Nigeria. The IMF forecasts that the country’s economy will dive into recession for the first time in years, dropping below 0 to around 3.4%.
