The implementation of Nigeria’s 2020 budget may suffer setback over the China’s recent outbreak of Coronavirus, forcing oil price to three-month low of $58 per barrel yesterday, from $60 last week

With this development, Nigeria may be losing about $2 per barrel. The Federal Government had in its 2020 budget benchmarked oil price at $60 per barrel, and a daily production of 2.1 million barrels per day (bpd).

Multiple sources familiar with trends in the global oil market are worried that the the disease may see oil price decline further in the weeks ahead.

China, which is a major market for crude oil in the world, appears to have slowed on its demand as major companies in need of fossil fuel are shutting down operations over fears of virus spreading further.

China’s coronavirus outbreak has rattled oil markets, sending prices sharply lower as investors worry that efforts to prevent it spreading will harm the country’s economy and reduce demand for crude.

Brent crude futures traded around 3% lower on Monday at $58.00 a barrel, their lowest level since October. US crude futures were down roughly 3 per cent.

The price of Brent, the global benchmark, has tumbled by about 10% since January 17, when Chinese authorities confirmed the death of a second person infected with the virus. It has spread rapidly since then, leading the Chinese government to impose restrictions on transportation. Full, or partial lockdowns, are in effect in 15 Chinese cities, covering 60 million people.

The death toll now stands at 80, with nearly 3,000 confirmed cases in mainland China and more than 50 in other places including the United States.

“As the human cost continues to rise, investors have become increasingly concerned about the potential economic consequences of the disease,” analysts at Rabobank said in a research note.

The virus could further weaken the Chinese economy, the world’s second biggest, which had already slumped to its slowest pace of growth in nearly three decades in 2019.

Ratings agency S&P Global said last week that China’s economic growth could contract by as much as 1.2 percentage points this year if spending on services such as transport and entertainment fall by 10 per cent.

There are big implications for energy markets. China is the world’s second-largest consumer of oil, according to the International Energy Agency, and reduced economic activity means less demand. Stephen Innes, chief market strategist at AxiCorp, said in a research note that travel restrictions would crimp demand for products made from crude oil, such as jet fuel.

Other economies are unlikely to pick up the slack. The International Monetary Fund last week downgraded its growth forecast for the global economy in 2020 to a tepid 3.3 per cent.

The coronavirus outbreak comes at a particularly bad time for oil prices, which were already under pressure from a global supply glut.

“The virus is fueling fears of cooling of oil demand, which would mean that the global oil market would be oversupplied to an even greater extent,” analysts at Commerzbank said in a research note.