The International Energy Agency (IEA) has forecasted that the crude oil glut which has lingered for the last two years is likely to remain dashing hopes of any increase in oil prices.
This is bad news for the Nigerian Economy, which relies on oil to increase its external reserves and stabilize the Naira.
According to Reports, the IEA blamed “ballooning inventories and rising supplies” has factors that will continue to sustain the glut and thus ensure that growth demand for oil will remain damped for a long time to come.
This is bad news for Nigeria considering how dependent the Nigerian economy is on oil. A sustained glut in the market means oil prices will remain low which will impact on Nigeria’s oil revenue and to a large extent the external reserves of the country.
The Central Bank of Nigeria, relies on dollar inflows from the sale of oil to print new currencies. Currently, for every $1 of oil the CBN buys for the Nigerian Government it converts or prints an equivalent of N305 (depending on the official exchange rate).
Thus, with oil prices set to remain bearish the Nigerian government is once again faced with the dire consequences of poor economic policies which has been its hallmark in the last year and a half.
A possible oil price hike can only now be achieved if either of the following occurs;
- Political or security unrest in any part of the economy
- Crude oil production freeze by OPEC and/or non OPEC countries
- Sudden growth in global oil demand (for example, a massive economic recovery in China)
Oil prices fell as much as 3 percent on Tuesday after both the world’s consumers and producers revised forecasts that signalled the global crude glut persisting for much longer than previously expected.
- Brent crude was down $1, or 2 percent, at $47.32 a barrel by 11:26 a.m. EDT (1526 GMT).
- U.S. West Texas Intermediate crude fell $1.25, or 2.7 percent, to $45.04.