OPEC fears glut in oil market, cuts forecast next year

The Organisation of Petroleum Exporting Countries (OPEC) has cut its forecast for oil demand for the remainder of this year by 80,000 barrels from August projections to 1.02 million bpd due to an economic slowdown and fears of a supply glut.

In 2020, OPEC said it sees world oil demand increasing by 1.08 million barrels per day, which is 60,000 bpd less than what its forecast last month. OPEC said this bearish trend justifies on-going efforts to prevent a new glut of crude

For countries like Nigeria, heavily dependent on crude oil revenue and on the brink of fiscal crises, this is not cheering news.

After four years of massive borrowings, foreign exchange restrictions which kept investors away and wasteful fuel subsidies, the presidency has admitted what everyone else already knows – the country is in a mess.

But the Federal Government is reacting. It has issued queries to the Babatunde Fowler over tax collections and shut the borders to force local consumption of commodities the country has limited capacity to produce and is now ready to loosen the grip on closed oil and gas projects.

Zainab Ahmed, minister of Finance, has said Nigeria’s problem is not debt but an inability to raise revenue. The challenge is that non-oil sectors which hold the promise of income diversification are weak.

GDP figures released by the National Bureau of Statistics show that the non-oil sector “grew by 1.64 percent in real terms during the reference quarter. This was –0.40 percent points lower than recorded in the same quarter of 2018, and -0.83 percent point lower than the first quarter of 2019,” the NBS said.

OPEC, in the report, lowered its forecast for world economic growth in 2020 to 3.1 percent from 3.2 percent and said next year’s increase in oil demand would be outpaced by “strong growth” in supply from rival producers such as the United States.

“This highlights the shared responsibility of all producing countries to support oil market stability to avoid unwanted volatility and a potential relapse into market imbalance,” the report said.

OPEC, Russia and other producers have since Jan. 1 implemented a deal to cut output by 1.2 million bpd. The alliance, known as OPEC+, in July, renewed the pact until March 2020 and a committee reviewing the pact meets Sep 12.

This new forecast will give the cartel a basis to push for around round of production cuts from its producers and non-members including Russia.

Nigeria once had exemptions from the cuts until production recovered in 2018 but Africa’s biggest producers have not been complying.

A survey by oil markets analytics firm, S&P Global Platts found that Nigeria which has often pumped more than its cap and hit its highest production level since January 2015 of 1.98 million bpd in August. Production was 1.93 in July. The addition of condensates put the figure at 2.2 million bpd.

Oil industry analysts closely watch forecasts OPEC forecast whose 14 members control at least a third of global supply since it has implications for prices.

International benchmark Brent crude traded at around $63.09 a barrel Wednesday morning, up around 1.1 percent while U.S. West Texas Intermediate (WTI) stood at $58.15, more than 1.2 percent higher.

 

ISAAC ANYAOGU