Recently, the Organization of Petroleum Exporting Countries (OPEC) released its World Oil Outlook for 2019. The medium-term (2019-2024) outlook for oil demand was revised lower, with total incremental demand at 6.1mb/d (down 16.4% from 2018). Also, oil supply forecasts were reduced, with total incremental supply, down by 38.3% to 6.0mb/d.
Following the release of the outlook, we note a few things likely to impact Nigeria, being a major oil producer. Notably, OPEC‘s medium-term estimates revealed the continued elevation of world oil supply above demand, which could pressure crude oil prices
lower, thus weakening future oil revenues for Nigeria. Additionally, global growth is slowing, as effects of trade wars, weakening fiscal stimulus and uncertainty are weighing on investment and productivity in major economies. With oil demand dancing to the tune of economic activity, a continued decelerating trend is not far-fetched. Also, the OPEC highlighted the increasing push for cleaner energy as substitution of oil, as growing policies on emission favour alternative sources of energy.
While the above-mentioned points threaten the long-term sustainability of Nigeria’s oil revenues, in the near term, we could see marginally stronger prices, augmented by further possible OPEC production cuts. However, should Nigeria fail to secure an exemption from future production cuts, the overall price increase will be clouded by lower output, thus capping revenue?
United Capital Research