For very oil revenue dependent nations like Nigeria, among others, gains since December from the spike in oil price, based on which its 2017 budget benchmark for oil was based, may be short-lived, going by warnings that the market value of the commodity my go south to as low as $30 per barrel soon.
A report by Bloomberg, citing an interview with Hans van Cleef, ABN Amro’s senior energy economist, warned that oil price may plunge by about 40% to as low as $30s without extension of supply cut already being implemented by the Organisation of Petroleum Exporting Countries (OPEC).
OPEC Secretary General, Mohammad Barkindo, a Nigerian, believes it was too early to say if the supply cut, which lasts for six months from January 1, would need to be extended or deepened at the next OPEC meeting in May.
“While Barkindo’s statement puts a confident spin on market fundamentals, we’d say questions do remain, given that Iran seems to be signaling increased production rather than improved compliance,” Tim Evans, an energy futures specialist at Citi Futures was reported as saying.
The 11-member cartel agreed to the deal at the end of last November 26, that would see members reducing total output to the market by a total 1.2 MMbpd for an initial six-month period, boosted by non-member nations such as Russia which agreed to cut output by 300,000bpd, which helped to raise the figure to about 1.8 MMbpd.
OPEC was however magnanimous to exempt troubled member-nations like Nigeria, still grappling with huge budget deficit at a time of serious internal strife from several fronts including its troubled north east region; series of oil installation bombings in the equally troubled Niger Delta region, among other pockets of uprising. The group also exempted Libya, which with Nigeria accounted for 220,000bpd
Cleef told Bloomberg’s Oil Buyer’s Guide, that should OPEC fail to cut output further, “oil price could drop back to where it was two years ago,” expressing doubt whether the output cut deal will persist.
But oil prices notched 2% to near its three-week highs on Tuesday after OPEC said it was sticking to its agreement to cut production and hoped compliance with the deal would be even higher as it expects other producers join its efforts to curb a global glut.
Barkindo said in London that so far conformity from participating nations had been above 90%, just as he expects more countries to join the output cut deal.
He told Financial Times: “We will continue to focus on the level of inventory drawdown to bring the level closer to the five-year industry average… All countries involved remain resolute in the determination to achieve a higher level of conformity.”
“All countries involved remain resolute in the determination to achieve a higher level of conformity,” Barkindo said.