Despite sharp decline of more than 67 percent in Nigeria’s oil receipts from September 2014, when it was at its peak, to July 2015, the Organisation of Petroleum Exporting Countries (OPEC) has said crude oil prices could see a recovery in 2016.
The decline in oil receipts by the country, which has already resulted in dire consequences to the Federation, was caused by the tumbling oil prices that had left most of the states in the country groaning under heavy financial burden.
According to OPEC, growing demand from emerging and developed markets, coupled with lower supply from non-OPEC countries, will lead to recovery.
Oil prices around the world can expect recovery and continued stabilisation in 2016, according to Abdalla Salem el-Badri, secretary general, OPEC, who further said that investors could be optimistic about the oil industry’s future in the coming months.
“We need to keep investing; it is essential for our industry,” said el-Badri, saying “I remain confident that our industry’s best days are yet to come.”
OPEC countries have been far from immune to sinking oil prices. Crude oil prices in Saudi Arabia, one of the world’s largest oil producers, sank to a six-year low in August following China’s economic downturn. Oil prices had been dropping for months, thanks to overproduction and lower demand. The Chinese market slowdown accelerated the negative trend, pushing prices down to $45 a barrel on August 25.
Low oil prices have caused oil companies to reduce their capital expenditure by almost 20 percent this year, from $650 billion in 2014. This trend of reducing investment in the oil industry could result in production shortfalls down the line.
Nigeria is the largest oil producers in Africa with an official production level of 2.5 million barrels per day, but it is currently producing about 1.9 million barrels per day because of a combination of problems ranging from oil theft and other ancillary problems.
This has affected the oil receipts and consequently led to the Nigerian National Petroleum Corporation (NNPC) into paying a total of $607.8 million in to the Federation Accounts Allocation Committee (FAAC) in the year 2015, from sales of export oil and gas as dollar proceeds.
A breakdown of this figure indicates that the total export crude oil and gas receipt for the period of January – August 2015 is $3.420 billion. Of the total receipts, $0.61 billion was remitted to Federation Account as dollar proceeds while the balance of $2.815 billion was used to fund the JV Cash Call for the period.
The NNPC informed that the continued decline in oil price led to insufficient cash available to meet monthly JV Cash Calls obligations of about $615.8 million as appropriated by the National Assembly. To mitigate this effect, the NNPC was compelled to sweep all the export receipt to JV Cash Call funding implying a zero dollar proceed remittance to the Federation Account since the month of April 2015.
However, it is believed that several outside factors could complicate OPEC’s recovery, especially from within the organisation.
Indonesia, for instance, is set to rejoin OPEC in December, after a seven-year hiatus, and experts said the country’s readmission could complicate recovery, even as one of the smaller oil producers in the organisation. If the group decides to raise the oil ceiling in order to accommodate Indonesia, the higher supply could decrease the price per barrel.
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