Oil Prices: Hope of Major Rebound Dims

Nigeria’s crude oil production dipped to 1.8mbpd in April

Ahead of the June 2015 meeting of energy ministers of member countries of the Organisation of Petroleum Exporting Countries (OPEC) in Vienna, Austria, there are indications that the oil cartel may have given up hope of any near upsurge and significant rebound in the global prices of crude oil. Also, Nigeria’s oil output recorded a marginal decline for the month of April. According to a draft paper leaked to the Wall Street Journal, OPEC had in its most optimistic scenario, projected that oil price will not exceed $76 a barrel until after 2025. The cartel, it was reported, also considered a scenario in which oil price fell below $40, although it denied that the draft document existed, but industry pundits note that such conclusions may be true considering that the chances of a return to

triple-digit crude prices now look slimmer than it had ever been recently. In the same vein, reports in the Economist also quoted the International Energy Agency (IEA) which represents the main oil-consuming countries of the world to have said that a global oil glut was gradually building as Saudi Arabia frantically pumped more oil in a continuing battle for market share with American shale-oil producers. The report equally noted that the shale firms have proved a lot more resilient and productive than Saudi Arabia and other members of OPEC but the cartel had in April showed some resilience by pumping 30.84 million barrels per day (mb/d) of the total global production of 94.10mb/d. OPEC in its monthly oil market report for April explained that preliminary data indicates that global oil supply decreased by 0.39 mb/d to average 94.10 mb/d in April compared with the previous month. It noted that the decline of non-OPEC supply in April decreased global oil output, which was partially offset by an increase in OPEC production, adding that the share of OPEC crude oil in total global production increased slightly to 32.8 per cent in April compared with the previous month at 32.6 per cent. The report however showed that Nigeria pumped just about 1.886mb/d of OPEC’s 30.84mb/d April crude oil production, thus bringing down her production further from 1.940mb/d and 1.896mb/d it recorded in February and March. OPEC in November 2014 refused to cut production and conceded market share to other producers, with the hope that this would force rival producers, especially in the American shale beds, to slash investment. They had projected that as supply tightened drastically, the oil price would rebound. This however has not happened and prices have only staged a partial recovery which was the West Texas Intermediate (WTI), one of the main benchmark prices for crude recovering to just $60 per barrel by the middle of last week from $44 per barrel in March. Pundits, in this regard, stated that instead of OPEC and particularly Saudi Arabia which used to be the “producer” in such price volatility, American shale firms have now toppled the cartel to become the new “swing producer” of the global oil market. They explained that the market is now increasingly being led by the American frackers, ramping their drilling up and down in response to global prices, warning however, that unless some large-scale conflict erupts that takes out some of the world’s biggest oilfields, the oil industry may be heading for a new normal in which the price of crude oscillates in the mid-double digits.