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Oil prices to drop further as market may witness largest glut in H1

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The oil market is heading for the largest ever crude glut in the first half of 2020, which could be two to nearly four times bigger than the biggest surplus recorded so far, IHS Markit says, as quoted by Bloomberg.

The glut in H1 2020 could reach between 800 million barrels and a staggering 1.3 billion barrels, more than two and up to nearly four times larger than the previous biggest glut of 360 million barrels in late 2015-early 2016, according to IHS Markit.Brent crude dropped by 11.37 per cent to $31.41 per barrel yesterday.

The largest-ever glut is coming as oil demand is slumping due to the coronavirus pandemic and former allies Saudi Arabia and Russia promising to flood the market with oil as they are in an all-out price war for market share.

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Already, the NNPC confirmed that there are no buyers for the oil cargoes and these are creating issues for the economy. Except the pandemic is addressed, Nigeria may not enter a recession”, he added.

Group Managing Director (GMD) of the Nigerian National Petroleum Corporation (NNPC), Mele Kyari, equally raised the alarm of a looming tough time and urged Nigerians to prepare for it, in few months, following the crash in the prices of crude oil due to outbreak of coronavirus.

He explained that about 12 Liquefied Petroleum Gas (LPG) cargos got stranded globally because they had no hub due to abrupt collapse in demand associated specifically with coronavirus.

“It has also hit other sectors from the production stage which is the liquid crude. As at today with the Nigerian crude, we have 50 cargoes that have not found landing; it means the traders have purchased it but they don’t know how to take it”, he added.

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“The last time that there was a global surplus of this magnitude was never,” Jim Burkhard, vice president and head of oil markets at IHS Markit, said, as carried by Bloomberg.

“Prior to this the largest six-month global surplus this century was 360 million barrels. What is coming will be twice that or more.”

What is coming could be a glut on a monthly basis of between 4 million bpd and 10 million bpd between February and May, according to IHS Markit.Oil demand in the next two months could be down by as much as 10 million bpd, the analytics and consultancy firm said.

Crude oil demand during this quarter will likely register the largest decline on record, larger even than the slump that accompanied the 2008 financial crisis, IHS Markit forecast earlier this month.

Saudi Arabia prepares to unleash as much as an extra 2.6 million bpd on the market in April, the UAE is ready to add another 1 million bpd, and Russia promises to boost production as the oil price war is heating up.

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Mele KyariNNPC
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