Nigeria’s economy has posted sluggish growth in the six months ending June, with signs that rapid economic stimuli are needed to steer the country onto a path of a faster, inclusive growth. This weak economic growth may be compounded by Nigeria’s cargoes of oil being without buyers, a potential glut in the international market, and weakening oil prices due to the USA-China trade war.
Data published by the National Bureau of Statistics (NBS) show that Nigeria’s gross domestic product (GDP) in the three months ending June (Q2 2019) expanded by 1.94 percent compared to 2.10 percent (revised from 2.01%) in the three months ending March (Q1 2019 and 1.50% in Q2 2018).
Experts have said Nigeria’s GDP needs to grow twice as fast as Africa’s most populous nation’s current population growth of 2.60 percent. A GDP growth rate of less than 2 percent shows an economy already under strain and failing to create jobs for its teeming youthful population. For young people aged 15 to 35, the figures are grim: 55.40 percent of them are without work. This set of people also comprises over 60 percent of Nigeria’s 200 million population.
Two other factors are now about to compound the effects of weak economic growth. Nigeria’s cargoes of oil are failing to find buyers. This is a consequence of shale oil from the US Permian Basin, Texas, flowing into traditional strongholds for Nigerian oil in Western Europe, India, and Indonesia. The two crude oil grades from Nigeria and the United States have similar properties of being light and are ideal for refining into premium motor spirit (PMS) petrol.
Nigerian oil suffered its slowest sales of the year in August, traders said, as the United States exports of competing light, sweet grades flooded Africa’s biggest oil producer’s traditional markets in Europe and Asia.
Crude from Africa’s top exporter has largely been pushed out of the US market in the last decade due to booming domestic output. Exports to the United States slid to zero for three weeks in July, the US Energy Information Administration said.
Coupled with slower oil sales, the international oil market faces potential glut. A senior oil market watcher predicts that the oil price may crash in 2021 if the Organisation of Petroleum Exporting Countries (OPEC) does not further cut production.
Jarand Rystad, founder of research consultancy Rystad Energy, told delegates at Offshore Europe Wednesday there is an oil surplus this year. There will likely be “an even bigger surplus next year.” Rystad has envisages oil price collapse if the oil cartel does not cut output.
Explaining why the cartel is “holding back” on a cut, he said it comes down to the planned initial public offering of Saudi Aramco shares and the Riyadh government’s need to “report solid numbers.” An initial public offer (IPO) could be launched in early 2020, according to reports.
Rystad said another factor keeping up the oil price into 2020 is the introduction by the International Maritime Organisation of a 0.50 percent global sulphur cap on shipping fuel from 1 January 2020, down from the present 3.50 percent limit.
He said “the International Maritime Organisation (IMO) 2020 effect” may delay the oil price collapse until 2021. Looking further ahead, Rystad suggests that, under an aggressive scenario, oil demand could peak in 2025, if there is rapid adoption of electric vehicles and bioplastics.
More realistically, however, he predicted a zenith for oil demand in about 2035. But Keisuke Sadamori, director of energy markets at the Paris-based International Energy Agency (IEA), does not expect oil demand to peak before 2040.
The IEA director, also addressing the Aberdeen audience, increasing efficiency, and petrochemicals usage will be major factors impacting oil demand, alongside what he called the “impressive” growth in renewables.
