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Nigeria’s economic crisis to worsen on account of another possible oil price war

The Nigerian economy may be thrown into a worse crisis if the signals coming from some OPEC members are anything to go by, as there are reports that Saudi Arabia may start another oil price war.

Saudi Arabia and some OPEC members who are already complying with OPEC production cut are likely to take measures to counter some other nations who are overproducing. This may trigger disaster in the international oil market.

There is also the looming threat of European lockdowns because of the second spike of the COVID-19 pandemic.

Foreseeing this danger, President Muhammadu Buhari had already said the country’s economy may slip back into another recession in the third quarter of 2020.

“GDP growth is projected to be negative in the third quarter of this year. As such, our economy may lapse into the second recession in four years, with significant adverse consequences,” Buhari said while presenting the N13.1 trillion budget for 2021 with a deficit of N4.8 trillion that will be financed mainly by borrowing.”

The ongoing weakness of global oil markets seems to be stoking tensions within OPEC+, and a split within its leadership is now imminent. From the start of this year’s Moscow-Riyadh brokered OPEC+ production cut deal, internal differences have been kept at bay by a global pandemic and high crude oil storage volume.

Analysts say market optimism now seems to be growing, from bullish reports about next year’s crude oil prices. But the reality of oil markets is far bleaker.

Nobody is talking about a new oil price war yet, but the writing is on the wall with some producers now fed up with strangling their own production to counter the overproduction of others. Asian importers, especially China and India, have been the rewards of this low price environment, filling their oil storage tanks to the brim. Although most Asian importers now seem to be content with storage. Any economic downturn of Organisation for Economic Co-operation and Development price reaping (OECD) will put several million barrels per day of expected Asian demand at risk benefitting from the low prices.

In contrast to former assessments, Q32020-Q12021 is not forecast to see a healthy upturn of oil and petroleum products demand worldwide. Global oil storage levels are still high, while the world is awash with oil and gas. International traders are openly questioning the current OPEC+ move to put extra oil on the market, as there is no current need for these barrels. In January 2021, the former production cut of around 10 million bpd (May 2020) will fall to 6 million bpd. As stated in May, not even the existing cuts are sufficient and an easing of cuts will only prolong the current weak market conditions.

The threat of European lockdowns is real, hitting global demand again while taking a heavy toll on the economy. Financial easing and subsidies worldwide have kept some demand in place, but the financials of major economies are bleak, which can be seen in the rising level of unemployment.

According to Oilprice.com, this will not only remove OECD demand for oil but also for Asian manufacturing. OPEC+ seems to be looking at things differently though, with oil taps in Saudi Arabia, Russia, and other OPEC+ member countries opening once again. OPEC production cuts compliance is still around 100percent, but the coming months will see that figure fall.

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