More trouble for Nigeria as crude glut persists

Hopes for early rise in the price of crude to buoy a depressed Nigerian economy may have been dashed as Organisation of Petroleum Producing Countries (OPEC) announced that rather than decrease, oil output from nonmember countries would increase in 2017 thus escalating global surplus.

Nigeria’s foreign reserves declined week-on week by 0.84 per cent to  US$25.20  billion as  at Wednesday,  07  September 2016.

And Minister of State for Agriculture, Heineken Lokpobiri has raised the alarm that before December this year, the price of rice may rise to N40,000 per bad.

Last week, OPEC members went from working to cut output to maintaining current levels but with understanding that Nigeria and Iran were free to increase their output cut due to militant activities and international sanctions.

Production from outside the cartel will grow by 200,000 barrels a day next year, according to the group, which a month ago had projected a drop of 150,000 a day.

The gain is driven by the startup of the Kashagan oil field in Kazakhstan. That means the organization’s total output of 33.24 million barrels a day in August was 757,000 a day higher than the average amount the world will need from OPEC in 2017.

“For 2017, non-OPEC supply growth has also been revised up,” the organization’s Vienna-based research department said in its monthly market report. “This is mostly due to new production from Kashagan next year.”

Oil climbed above $50 a barrel last week on speculation that OPEC may reach an accord on output levels with competitors such as Russia at informal talks scheduled in Algeria later this month. Prices have since retreated amid doubts that any agreement will mean a reduction of supplies as long as producers are resolved to defend their share of world markets.

Stockpiles in developed nations remained 341 million barrels above their five-year average in July, OPEC estimated. The surplus is poised to diminish in the coming months as a result of surprisingly strong demand in major consuming nations, according to the report.

“This, along with a potentially improving oil supply picture, would contribute to a reduction in the imbalance of market fundamentals,” it said.

Still, the report indicates that the market will continue to be defined by abundant supply in 2017. As a result of OPEC’s increased projections for rival output, the group cut estimates for the volume of crude it will need to provide next year, by 500,000 barrels a day to 32.5 million a day.

The organization kept its estimates for world oil demand unchanged, forecasting that consumption will increase by 1.15 million barrels a day next year to average 95.42 million a day, driven by growth in India, China and the U.S.

Despite recording an inflow of $595 million into the country’s foreign exchange(forex) reserves in just 72 hours as confirmed by the Central Bank of Nigeria (CBN), Nigeria’s forex reserves declined week-on week by 0.84 per cent to US$25.20 billion as at Wednesday, 07 September 2016.

The decline in reserves was in spite of a week-on-week (w-o-w) increase in global crude oil prices, especially Organization of Petroleum Exporting Countries’ (OPEC’s) reference basket price which appreciated by 6.21 per cent to US$44.61/barrel as at September 8.

Lokpobiri, who spoke at a town hall meeting on Saturday in Yenagoa,  Bayelsa State said that Nigeria spends about $22bn a year on food importation.

He said the development had led to the astronomical rise in prices of rice and other products, stressing that if Nigerians failed to produce some of the items being imported before December, the price of rice would skyrocket to N40,000.

“Price of rice was N12,000 some months ago, but it is now about N26,000 and if we don’t start producing, by December, it could be N40,000.