Nigerian Economic situation gets Messier as Crude Oil Prices decline further

The Nigeria’s financial situation may get messier if the prediction of the International Energy Agency (IEA) comes to pass.

According to the agency, oil prices may fall further this year because the world remains “massively oversupplied,” before markets tighten in 2016.

Nigeria economy is experiencing some difficulties because of the decline in the price of crude oil. The country depends on oil as it major source of foreign exchange earnings. It current daily production averaged 1.8 million barrel per day as against projected 2.3 million barrels per day in the 2015 budget of the government.

Crude oil theft coupled with constant pipeline vandalism by militants in the Niger Delta have combined to castrate the crude oil production growth in the country.

Because of declining crude oil prices, which have affected the revenue profiles of the country, many state governments are currently owing salaries arrears in the region of nine months.

 

According to the IEA, there will be no overall production growth outside the Organisation of Petroleum Exporting Countries (OPEC) next year for the first time since 2008.

Growth in US shale oil supplies will stagnate to the middle of 2016, while output declines in Russia, the Paris-based adviser said in its first detailed assessment of the year ahead. Global oil demand growth will slow, the agency predicted.

Oil-producing nations around the world are reeling after OPEC initiated a strategy in November to defend its share of global markets by pressuring rivals to curb output. Oil prices, about 45 percent lower than a year ago, may need to decline further to reduce the supply surplus, the IEA said.

“The bottom of the market may still be ahead,” said the agency, which advises 29 industrialised nations on energy policy. “Non-OPEC supply growth is expected to grind to a halt in 2016 as lower oil prices and spending cuts take a toll.”

Brent crude futures, a global benchmark, pared gains after the report. The August contract traded 9 cents higher at $58.70 a barrel at 1:49pm on the London-based ICE Futures Europe exchange, having earlier risen as much as $1.05. The grade has lost 13 percent from this year’s peak in May.

“In the short term, the report is definitely bearish” because of its assessment of a massive surplus, said Amrita Sen, chief oil analyst at consultant Energy Aspects Limited in London. The 2016 numbers are supportive of prices because of the “huge swing” in the trend of non-OPEC production growth, she said.

US production growth will slow to 300,000 barrels day next year from 900,000 a day in 2015, with gains in offshore production and supply of natural gas liquids. While “cost savings, efficiency gains and producer hedging” have helped shale drillers beat expectations so far, the nation’s boom can’t keep going at current prices, the agency said.

The halt in non-OPEC growth projected for 2016 contrasts with an expansion of 1 million barrels day this year and a “massive” 2.4 million in 2014, the IEA said. Russia’s production will slip next year to 10.86 million barrels a day from 10.98 million, the agency forecast.

IEA