Experts forecast gloomy future for crude oil prices in 2016
Also, the Organisation of the Petroleum Exporting Countries (OPEC), yesterday, projected that oil supply from non-member countries will fall more sharply next year, which would support its strategy of defending market share rather than prices.
The experts, who included Executive Director of the International Energy Agency (IEA), Dr. Fatih Birol and a Research Fellow in Energy Economics at the University of Aberdeen, Aberdeen, UK., Dr Sola Kasim, believed that the current glut and refusal by OPEC to cut production will make crude oil prices to decline even further.
Speaking with The Guardian yesterday, Kasim said the earliest sustained oil price recovery is expected, in some quarters, to be late-to-early 2017.
According to him, the new “lower for longer” cliché creeping into the industry’s lexicon isn’t necessarily bad for OPEC, if it’s interpreted to imply lower oil prices for the ability to produce and sell oil for longer.
“As OPEC belatedly realised, high oil prices hurt its market share because they allow the development of the higher cost alternatives – such as shale oil and gas as well as some renewables. Some respectable experts predict that oil prices may fall as low as $28 per barrel in the first quarter of 2016, given the combination, for the time being, of OPEC’s stance not to curtail supply, and the weakening global demand for hydrocarbons”, he added.
Dwelling on the impact of the plummeting crude oil prices on the Nigerian economy, Kasim believed there would be more suspension or downright cancellation of some public- and private- sector capital projects and, difficulty in paying staff salaries.
He however projected a positive short-to-medium term implications of opportunity to re-balance the economy. “As the rates of returns to investment in the oil and gas-related sectors fall, hopefully more investments and resources will be channelled to the non-hydrocarbon sector. The journey to a deepening re-balancing of the economy in the long-term cannot start soon enough”, he added.
Speaking on the sidelines of the Paris climate change conference, Birol said: “Looking to 2016, I see very few reasons why we can see growth in prices,. I think 2018 will be a year where we will have a lower price environment”.
According to him, there is a lot of oil in the market now, and 2016 demand in the market will be weaker. “At the same time we may well see Iran come to the market if sanctions are lifted, which is going to increase oil in the market”.
The OPEC projection of improved market share was however against the background of higher output achieved by OPEC members in November, which bolstered a supply glut and forecast that global oil demand growth would slow down next year.
OPEC’s report follows an acrimonious meeting on December 4, where it rolled over a policy of pumping crude to safeguard market share.
A year ago, Saudi Arabia pushed though an OPEC decision to defend market share instead of cutting output, hoping to slow growth in rival supplies.
Supply outside OPEC is expected to decline by 380,000 barrels per day (bpd) in 2016, the report said, as output falls in regions such as the United States and former Soviet Union. Last month, OPEC predicted a drop of 130,000 bpd.