OilPalpable anxiety has continued to dominate the Nigerian economic scene, as the International Monetary Fund, IMF, yesterday predicted a further dip in the price of oil in the international market.
It predicted that the price of the product would plummet to between $20 to $30 dollars per barrel in 2016, raising serious fears on President Muhammadu Buhari’s 2016 oil benchmark and speculations that his government would bring the fuel pump price to N85 per litre from the present N87 per litre, amid calls for total removal of oil subsidy.
IMF’s prediction is premised on the return of Iran to oil export in the global market, explaining that Iranian pumps would increase the supply in the market and subsequently dip the price next year.
IMF said, during Asian trade on Wednesday, West Texas Intermediate, WTI was up 1 percent at $36.50 per barrel, while Brent Crude rose 1.27 percent at $36.57 per barrel. A further decline of $5-15 may imply that it will go further down in the $20-30 per barrel range.
Iran, a major member of the Organization of Petroleum Exporting Countries, OPE, has the ability to ramp up production, and flood the already-oversupplied markets. According to International Energy Agency, IEA’s December oil report, Iranian crude exports could push the global inventories above 300 million barrels by next year.
The country was under sanctions from the US and other western powers since 2011, which made it unable to export oil, despite having the world’s fourth-largest oil reserves. In 2016, it is expected to pump an additional half million barrels of oil per day into the markets.
According to the IMF, oil prices will decrease more, once the country’s oil production increases. Following the news about the said sanctions’ removal earlier this summer, oil prices declined.
It would be recalled that Goldman Sachs predicted that crude prices will fall to about $20 a barrel. However, considering IMF’s prediction, the energy sector and the exploration and production companies in particular could face serious problems. The oil market is already oversupplied by 2 million barrels per day, and Iran expects its output to increase to around one million barrel. This can take a toll on crude oil prices.
Lower oil prices are a major concern for energy and oil-exporting countries, as they lead to reduced budget revenues.
President Buhari had, while presenting the N6.08billion 2016 budget last to the National Assembly last week, pegged the oil benchmark for the 2016 budget at $38 per barrel. Also the budget projected crude oil production of 2.2 million barrels per day mbpd for next year’s budget.
The implication is that since oil export is the major source of foreign exchange for the nation’s economy, a further depreciation of the price of oil would negatively impact on the implementation of the budget.
Also at the local scene, government may be forced to reduce the price of petroleum products next year to meet up with the prevailing circumstances in the global market.
Earlier in December, the OPEC refused to lower oil production to curb falling oil prices, and instead increased production to 31.5 million barrels per day. If oil prices fall to $20 a barrel, investment and production may fall, which would result in a reduced demand-supply gap, and in turn increase prices.
IMF claims that the impact of Iranian crude exports’ return in the market would depend on the OPEC. However, given that the OPEC didn’t reduce production in December, it is highly unlikely that it would do so in the upcoming export expectation.


  • iheanyi

    Any of two things is possible with the 2016 budget. One is success which will be attributed to the ‘brilliance’ of GMB. The other is failure which expectedly is the ‘handiwork’ of GEJ.