NIGERIA: OIL PRICES DROP AS OPEC INCREASES PRODUCTION RATE FROM JULY

NIGERIA: OIL PRICES DROP AS OPEC INCREASES PRODUCTION RATE FROM JULY

Originally published on June 26th, 2018

The prices of crude oil declined yesterday as the Organization of the Petroleum Exporting Countries (OPEC) decided to increase supplies of the commodity to one million barrels, effective from first of July.

The primary aim of this decision is to compensate the producing countries to regain their production loss at a time of rising global consumption.

The implication of this is that a producer with spare capacity will find it easy to increase its production.

However, Nigeria has already been excluded in the aforementioned output exercise as a result of the erratic situation in the Niger Delta that has reduced the country’s production below one million barrels per day.

About 1.8 million barrels per day were withdrawn from the market by OPEC and non-OPEC members in order to elevate the prices of crude oil.

On Friday, when OPEC meeting was still ongoing, crude oil prices rose a little, but Brent crude, which is the international yardstick for oil prices, dropped from $75.32 a barrel to $74.44 per barrel.

During the trading period on Monday, Nigeria’s Bonny Light crude oil also rose to $74.60 per barrel from $73.04 per barrel.

Commenting on this development, Abiola Sowole, the Executive Chairman, Arrowville Energy Limited, stated that prices of crude oil are being judged by the fundamental economic principle of supply and demand.

She further asserted that if there is any unexpected interruption in the trend of supply, perhaps due to geo-political influence or other reasons, increase in oil prices will occur.

"Nobody can tell how sustainable high prices are. There are several forecasts, however, of continuous rise in prices. One prediction is that they will rise to $75 a barrel this year, reaching $80-$85 next year and hitting $100 or higher by 2020, if the International Monetary Fund's projection of a growing robust economy materializes and if there is a fast-growing global demand for oil.

“Another prediction is that oil prices will jump to $140 a barrel, due to U.S. sanctions against Iran and Venezuela, unless OPEC and Russia agree to reverse the oil production cuts they agreed to in 2016," she added.

The Guardian