Close button
The Guardian
Email YouTube Facebook Instagram Twitter WhatsApp

OPEC and the battle for market share

Related

Opec HQ Photo: Wikimedia

Opec HQ Photo: Wikimedia

As the prices of crude plummet to its lowest level in nearly a decade, the ability of members of Organisation of Petroleum Exporting Countries (OPEC) to reclaim its market share has become a concern to stakeholders.

Oil prices fell for a seventh straight session on Monday, coming close to 11-year lows, on growing fears that the global oil glut would worsen in the months to come in a pricing war between leading OPEC and non-OPEC producers.

Following the decision on 4 December by OPEC to continue its strategy to seek market share rather than support prices, US crude oil values broke under $40 a barrel.

That sent values to their lowest levels since December 2008, when the front-month West Texas Intermediate crude-oil futures price fell to around $34 on Monday.

The continuing slump in global oil prices is already affecting the budgets of oil-producing countries such as Nigeria. Iraq and Libya that are struggling with severe political and security problems.
Already, the Federal Government, last week pegged its crude oil benchmark for 2016 budget at $38 per barrel, a reduction from the $52 per barrel it proposed for 2015 budget.

Just few days after President Muhammadu Buhari made this decision, crude oil prices suddenly dropped below the benchmark by over $2.

Nigeria needs oil prices to average Brent crude oil price of $123 a barrel to run its yearly budget, which rely heavily on proceeds from crude oil prices.
Though, OPEC decided to maintain crude oil production and hoping prices may rebound by early next year, experts believe that the battle for the cartel to reclaim its market share will take longer time than expected.

For example, International Energy Agency (IEA) said recently that OPEC was still far from winning the battle over declining crude oil prices.
According to IEA, Fatih Birol fresh data on worldwide crude production was only a sign that global glut of oil was growing, which could make a recent recovery in oil prices unsustainable.

The Executive Director of IEA said that that crude prices could continue to fall in 2016, presenting a challenge to governments that are trying to encourage the use of relatively expensive sustainable energy.
“When we look at 2016, I don’t see many reasons why we can see upward pressure on the prices. Demand is weaker and we may well see Iran come back (to the market) and there will be a lot of oil. “So 2016 may well be another year with lower prices and this will have implications of course for investments in the oil sector,” he said.

Also, the International Monetary Fund (IMF) said in its ‘Global Implications of Lower Oil Prices’ that the oil price outlook is highly uncertain, saying a substantial part of the oil price decline is expected to persist into the medium term.

It stated; “Futures markets imply an increase in Brent oil prices to some $75 a barrel in 2020, but recent experience—including the Brent price rally to about $65 a barrel in April—suggests there may be considerable volatility around this upward trend. The IMF uses futures contracts for its baseline assumptions for oil prices. There is no simple alternative to futures for price forecasting at this stage; institutions using models missed the large price drop as well. An alternative supply-demand model being developed by IMF staff also points to gradually higher oil prices over the longer term—needed to ensure sufficient investment in production capacity to meet growing demand—but there is a very wide range of uncertainty”.

The World Bank also reversed its forecast for crude oil prices due to slowing in global economic performance, high current oil inventories, and expectations that Iranian oil exports will rise after the lifting of international sanctions.

Senior Economist and lead author of Commodity Markets Outlook. John Baffes, stated: “We see a five-year-long slide in most commodity prices continuing in the third quarter of 2015.

There are sufficient inventories of oil and other commodities and demand is weak, especially for industrial commodities, which is why prices may stay persistently low,”


Receive News Alerts on Whatsapp: +2348136370421

No comments yet