In another bad news for oil-producing countries like Nigeria, the International Energy Agency has revealed that the oil glut in the world is more than what was expected. Prior to the latest report, supply of oil in the world market was more than consumption by as much as 1.75 million barrels per day compared to the 1.5 million barrels reported last month. What this essentially means is that oil prices are not about to climb up any time soon as prices typically drop when supply outweighs demand.
To support this claim, Iran has recently increased its production following the removal of sanctions while other OPEC countries such as Iraq and Saudi are also not cutting back. Saudi’s are not even willing to cut back on supplies suggesting that if there is a need to reduce supply then every oil-producing country (not just OPEC) must cut production too. The implications are dire as the IEA explains
“With the market already awash in oil, it is very hard to see how oil prices can rise significantly in the short term…..In these conditions the short term risk to the downside has increased.”
Here are other key highlights of the report as reported by Bloomberg;
- Production from OPEC’s 13 members climbed by 280,000 barrels a day last month to 32.63 million. That’s about 900,000 a day more than the average required from the group in 2016.
- Iran expanded production by 80,000 barrels a day to 2.99 million in January after sanctions were removed.
- Iraq increased output by 50,000 barrels a day to 4.35 million and could raise that further, according to the IEA.
- Saudi Arabia, OPEC’s biggest member and de facto leader, boosted production by 70,000 barrels a day to 10.21 million.
- The IEA lowered its estimates for global oil demand for last year and 2016, by 100,000 barrels a day, leaving the level of growth for this year unchanged at 1.2 million barrels a day to average 95.6 million a day.
- That growth is weaker than the five-year peak of 1.6 million barrels a day reached in 2015, amid slowdowns in Europe, China and the U.S.
- Oil inventories in developed nations increased in December, a month when they normally decline, by 7.6 million barrels to 3 billion.
- That left stockpiles about 350 million barrels above average, according to the report.
- Supplies outside OPEC slipped by 500,000 barrels a day in January from the previous month, halting annual growth.
- While non-OPEC production will drop by 600,000 barrels a day this year as the U.S. shale boom sputters, the decline is “taking an awful long time to happen
- Global refinery runs fell by 1.3 mb/d in January to 79.8 mb/d, as the onset of seasonal maintenance in the United States and weakening refinery margins curbed runs.
- Global throughputs nevertheless stood more than 1.7 mb/d above a year earlier, with gains particularly strong in the United States and the Middle East.
This is chilling news for Nigeria as it appears there is no respite to our fiscal woes. The government is basically running out of options considering the criticisms its economic policies have attracted. To make matters worse it has a disastrous 2016 budget that is probably going to be thrown out.