14 July 2015, Lagos – Nigeria and other oil producing countries are set for tougher times following the fall in global oil prices, according to the Oil Market Report of the International Energy Agency, IEA.
The report revealed that oil prices are set to come under further pressure from easing global demand and an expanding glut of crude, while a rebalancing of the markets may last well into next year, the West’s Energy watchdog said last week.
The Agency said it expected global demand growth to slow next year to 1.2 million barrels per day, bpd, from 1.4 million this year – far less than needed to balance stubbornly growing non-OPEC and OPEC supply.
According to the Agency, “The bottom of the market may still be ahead. Also, the rebalancing that began when oil markets set off on an initial 60 per cent price drop a year ago has yet to run its course. Recent developments suggest that the process will extend well into 2016.
“The oil market was massively oversupplied in the second quarter of 2015, and remains so today. It is equally clear that the market’s ability to absorb that oversupply is unlikely to last. Onshore storage space is limited. So is the tanker fleet … something has to give,” it said.
The global glut arose from a steep spike in US oil supply on the back of the shale revolution and OPEC’s decision not to reduce output but rather to fight for market share with rival producers.
However, the fall in prices to $50 – $60 per barrel in recent months from as high as $115 a year ago has yet to depress North American supply.
Specifically, the IEA said the expected timing of the rebalancing has shifted a bit, but the story line has not changed. The supply response to lower prices is on the way, adding that it may take another price drop for a full supply response to unfold.
“Also, cost savings, efficiency gains and producer hedging have let light tight oil producers defy expectations until now, but growth ground to a halt in May and will likely stay there through mid-2016.”
It also noted that US supply grew by 1.0 million bpd in the first five months of 2015, down from 1.8 million in 2014. “Total US supply will keep growing through 2016, but much more slowly than in 2014, and thanks to natural gas liquids and new deep-water plays rather than onshore crude supply.”
Similarly, the report had it that non-OPEC supply as a whole, after expanding by a massive 2.4 million bpd in 2014, looks on track to slow to growth of 1 million bpd in 2015 and stay flat in 2016.
The Agency further stated that among other bearish signals, world oil demand growth appeared to have peaked in the first quarter of 2015 at 1.8 million bpd and would continue to ease throughout the rest of this year and into next.
This, according to the report indicate that the need for OPEC’s oil will stand at 30.3 million bpd next year, up 1 million bpd on 2015, but still a whopping 1.4 million bpd below current OPEC production.
“And the group is not slowing down, as on the contrary, its core Middle East producers are pumping at record rates and the outlook for Iraqi capacity growth which accounts for most projected OPEC expansions keeps improving.”
The report however quoting the latest monthly data, said that Nigeria oil product deliveries continued to fall sharply in Year on Year, Y-O-Y terms, plummeting as escalating fuel shortages plague the country enthralled in a dispute between the government and national fuel marketers.
It said that, “Many businesses have been running below maximum capacity citing insufficient diesel to run generators, while airlines have curtailed internal flight schedules alluding to lack of jet fuel. Deliveries really started to break below year earlier levels mid-2014, and the y-o-y decline rate has generally deteriorated ever since.
“Moreso, tracking forward the hope is that a deal can be brokered, otherwise our 2015 demand forecast of 280,000 b/d, 1.9% down on the year looks somewhat optimistic, as does the IMF’s April forecast of near 5% economic growth,” the report said.
Moreover, the report attributed theft and sabotage as major effects to pipeline leaks, which has sank production in the country by 40,000 b/d to 1.76 mb/d in May. To this end, the country’s oil production continues to be hampered by large-scale theft in the Niger Delta.