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IEA projects drop in oil prices in 2020, cuts down estimates over global trade tensions

FOLLOWING attacks on two oil tankers carrying petroleum products at the Strait of Hormuz, a strategic waterway in the Persian Gulf, through which one – fifth of the world’s oil is transported, the International Energy Agency, IEA, on Friday in its monthly report predicts an increased global oil supply that would be more than the demand in 2020 which is likely to result in lower oil prices.

The global energy authority which directs the energy policies of industrial nations adjusted its 2019 global oil demand growth estimate by 100,000 barrels to 1.2 million barrels per day with a projected 1.4 million barrels per day increase next year.

“The main focus is on oil demand as economic sentiment weakens … The consequences for oil demand are becoming apparent,” the IEA said in its monthly oil report.

Though the report anticipates growth in world oil demand to accelerate to 1.4 million barrels per day in 2020, it also predicts a 2.3 million barrels per day increase in supply which might result to a slump in oil prices.

“A clear message from our first look at 2020 is that there is plenty of non-OPEC supply growth available to meet any likely level of demand, assuming no major geopolitical shock. This is welcome news for consumers and the wider health of the currently vulnerable global economy, as it will limit significant upward pressure on oil prices,” the report stated.

It is expected that demand will pick up markedly, averaging 1.2 per cent in 2019 and 1.4 per cent next year. The ongoing trade war between the US and China has helped the global oil market stage a recovery from the 2016 drop in oil prices as prices surged to about $75 per barrel in recent months according to the report, despite, the Organization of Petroleum Exporting Countries, OPEC, decision to cut down oil supply by 650,000 barrels per day in the first quarter of 2019, to increase prices in the global market.

The IEA report states that if OPEC continues with its stance to reduce oil output below the 650,000 barrels per day ceiling to improve oil prices. Production would be at its lowest since 2003 suggesting its strategy to support the oil market would have backfired, the report said.

What does this mean for the Nigerian economy?
The Central Bank of Nigeria, CBN, earlier in the year had predicted a forecast GDP growth of 3 per cent for 2019 partly due to projections driven by higher crude oil prices.

Richmond Osuji, an oil and gas consultant told The ICIR, that without the appropriate physical infrastructure put in place by the government to cushion the effects of lower crude oil prices the economy of the country will be hit badly.
“When the prices of crude oil dropped in 2016 we fell into recession so it is obvious that our economy will suffer from the effects of low prices since we depend majorly on revenue from the sector. However, when we came out of recession it was because crude prices rose, we didn’t have a strong strategy apart from depending on market forces to bail us out,” he said.

 

He affirmed that with the expansion of domestic gas utilisation in the country and an increase in the number of modular refineries in the country it would be easier for Nigeria to thrive in the face of dwindling global oil prices.

“If our government can’t make the refineries functional and effective then privatisation is another option. It will go a long way in bringing down the price of petroleum products and expanding the domestic usage of gas to drive production efforts to rake in profits,” he said.

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