The International Energy Agency has cut the estimates for the amount of crude needed from OPEC this year and in 2018 after lowering its historical assessments of consumption in some emerging nations. The implication of this is that Nigeria and Libya that were exempted from crude oil production cut may be asked to cut production in line with a tighter cut being envisage by OPEC. This could lead to a loss of revenue adding to the already precarious financial situation in the country. It is also capable of derailing the economic recovery and growth plan of the federal government.
But the Organisation of Petroleum Exporting Countries OPEC had earlier forecast that crude oil prices will rebound next year as glut in the international oil market fades. It projected that the demand for its members crude will grow by 2220,000 barrel per day. This was a cheering news for Nigeria that earns 70 per cent of its foreign exchange from crude oil sales.
OPEC had in its monthly report estimated that the world would need 32.42 million barrels per day (bpd) of its oil next year, up 220,000 bpd from the previous forecast. This signify a higher demand for its crude in 2018 basing its forecast on rising global consumption and signs of a stronger oil market that suggest an OPEC-led production cut is getting rid of price-sapping excess supply.
The report also said that physical oil markets in Europe and West Africa had firmed and that an increase in the price of Brent crude oil for immediate delivery compared to later supplies indicated the glut was easing.
However, IEA said world oil markets are re-balancing as the Organisation of Petroleum Exporting Countries and its allies implement production cuts, the IEA said in its monthly report. Still, inventories remain high and the volume of crude needed from OPEC is less than previously thought as consumption in some developing nations had been overestimated, it said.
Oil prices have lost about 9 per cent in London this year on concern that supply curbs by OPEC and partners including Russia aren’t aggressive enough to clear a global surplus. The agency lowered projections for the amount of crude required from OPEC this year and next by about 400,000 barrels a day. About 32.6 million barrels a day will be needed from the group this year, less than the 32.84 million it pumped in July. There are also growing doubts that all the countries involved in the accord to reduce supply are fully committed, the IEA said.
OPEC’s rate of compliance with the cutbacks slipped last month to 75 per cent, the lowest since the accord started in January. Iraq’s implementation was just 34 per cent, Venezuela’s 28 per cent and the U.A.E.’s 53 per cent. Adherence among the non-members coordinating with OPEC was at 67 per cent.
Despite the reduction in total demand estimates, the rate of growth for this year is stronger than previously thought, at 1.5 million barrels a day. “Producers should find encouragement from demand, which is growing year-on-year more strongly than first thought,” the IEA said.
OPEC’s cutbacks are having some success as global inventories declined in the second quarter by about 500,000 barrels a day, according to the agency. While that’s narrowing the surplus versus the five-year average — OPEC’s stated objective — stockpiles were still 219 million barrels a day above this level at the end of June, the agency said. With a lower demand outlook and higher OPEC output, “stock draws later in the year are likely to be lower than first thought,” it said.