Perhaps, we can try to put yesterday’s negative oil story in proper context.
There are different types of crude oil and crude oil contracts, which is typically based on the quality of the crude. There are two main types: Brent and WTI. Some others include Bonny Light, Qua Iboe etc.. It was just the WTI that went below zero, Brent was still about $25.
And Nigeria’s Bonny Light is priced relative to the brent.
Oil is sold via futures contract (story for another day). It was the contract for May delivery that went below zero. The contracts for delivery at dates further in the future were still in the +$20 level.
Why did it go sub zero?
There was an issue with storage. The world is running out of storage capacity. So nobody, wanted to buy a May delivery contract and have to take delivery in a few days time when they have no place to keep it.
A lot of crude oil is really just staying on ships, floating on sea and that comes at a cost.
So buyers, simply said – you have this oil and you have no where to keep it. I can buy it from you but you’d have to pay me to keep it.
Hence, the negative price on WTI for May delivery.
In Nigeria, our Bonny Light is not selling at zero or negative yet. Although, there is the issue of no buyers and having to sell at high discounts.
Besides, there is also the issue of our production cost which is almost $30, so at $25, we are basically selling at a loss.
Finally, Nigeria needs the price to go to about $133 per barrel to balance the budget. Clearly, that’s not happening anytime soon.