The International Energy Agency has projected that members of the Organisation of Petroleum Exporting Countries (which Nigeria belongs to) and all the other OPEC+ countries, will face very stiff competition in 2020, no thanks to increasing crude output from non-OPEC+ countries.
Reuters reported that the demand for crude produced by OPEC members will drop in the coming year. This is due to increased production output from the likes of USA, Brazil, Norway, and all the other non-aligned oil producers of the world.
“The OPEC+ countries face a major challenge in 2020 as demand for their crude is expected to fall sharply. Surging non-OPEC supply explains this drop, with growth of 2.3 million barrels per day (bpd) next year versus 1.8 million bpd in 2019.”
OPEC countries and their allies are scheduled to meet between December 5 and 6 to deliberate on some important issues, including whether to maintain its current production cut which is aimed at maintaining a balance between supply and oil prices. Considering the foregoing, this will be a rather challenging decision to make.
In the meantime, it is important to point out that the projected competition is not good for the likes of Nigeria, one of OPEC’s most prominent members. The country relies mostly on revenue generated from oil production. As such, it favours higher output and more dollars per barrel of crude.
In as much as lower demand is not a good thing for OPEC members, especially Nigeria, there is a more serious concern to worry about – the possibility of price decline in the market. This is because increased output from non-OPEC+ countries will result in more supply which will ultimately cause a further decline in price. Therefore, unless OPEC+ members are willing to maintain (or even introduce a stricter) output cut, the world could risk a drop in crude prices.
Just to reiterate the fact that neither a price drop nor further output cut is good for Nigeria. The country’s government is currently in search of more money to finance its 2020 national budget. As such, it needs to sell more crude and at a higher value.
This is a rather delicate situation and OPEC+ officials definitely have their job cut out for them as they meet in early December. Nairametrics will ensure to report the decisions reached at this important meeting.