OPEC adjusts oil demand to 8.9m bpd as uncertainty cloud extension of production cuts

The Organization of the Petroleum Exporting Countries (OPEC), on Tuesday, July 14, revised downward its world oil demand in 2020, to an estimated 8.9 million barrel per day (bpd) adjusting it up by 0.1 million bpd against last month’s projection.

OPEC’s projections enclosed in its July Monthly Oil Market Report, comes amid uncertainties clouding the extension of production cuts earlier agreed with allies to stabilize the market, as some analysts forecast price, insisting extension of the cuts may be suicidal.

This week, OPEC+ is expects to hold a committee meeting to assess the status of the oil market and decide on its next steps. The cartel currently agreed on a 9.7 million bpd cuts, which expires at July end and likely to be reduced further to 7.7 million bpd.

OPEC said the upward revision reflects slightly better-than-expected oil demand from the Organisation for Economic Co-operation and Development (OECD) region in the second quarters (Q2) of 2020, and offsets downward adjustments to non-OECD demand during the same quarter.

Already, stakeholders in Nigeria feared that development in the market, especially in terms of lower price and quantity would affect the strength of the naira against the dollar, worsening scarcity of foreign exchange while impacting negatively on the entire economy.

This comes as Nigeria already missed its revenue targets, with the Federal Government raising only N1.48 trillion (56 per cent), as total earnings from the oil sector by from January to May.

Abuja-based energy expert, Madaki Ameh, however believes the worst was over for the oil market as far as the COVID-19 shocks were concerned.“It can’t get any worse than the sub-zero prices witnessed earlier in the year. The gradual resumption of domestic and international flights, the resumption of factory activities, and movements of commuters across the globe will result in an increase in demand, which will keep crude oil prices on the cautious upward swing for a while,” he stated.

But Ameh noted that oil price spike would only leave consumers of Premium Motor Spirit (PMS) in Nigeria with a worst experience, as the country recently increased the pump prices.

While Nigeria had revised crude oil benchmark from $57 per barrels in the earlier budget to $25 in the new budget of N10.8 trillion signed last week by President Muhammadu Buhari, a former President of the Chartered Institute of Banker of Nigeria (CIBN), Prof. Segun Ajibola, noted that the resurging cases of COVID-19 would also affect oil prices.

With the revised budget benchmark, Ajibola stressed the need for Nigeria to improve the Excess Crude Account, stating that living without some buffers would continue to leave the economy vulnerable to external shocks.

“The implication of reintroduction of lockdown is imminent. We just passed the budget, but there is nothing you can plan with certainty if every of that plan is annexed to oil in terms of volume or price. That is the predicament we face as a country.

“When we have more than we budgeted, we should take a buffer. We need to discipline ourselves to the extent that we retain savings in the Excess Crude Account; if the price or quantity falls, we can rely on it. It is painful that we spend excess when we have it,” Ajibola stated.

PricewaterhouseCoopers’s Associate Director, Energy, Utilities and Resources, Habeeb Jaiyeola, decried the implications of the second wave of the pandemic.

Jaiyeola however envisages that price may remain relatively fair, arguing that countries would rather find ways to live with the virus instead of a total lockdown of the global economy, as witnessed previously.

“Many countries are cautious, this will affect demand. OPEC’s role will continue to be a significant tool for the market to stabilize. We may not be back to the good old days but the prices may remain a little fair,” Jaiyeola said.

OPEC, in its report said: “Oil demand growth in the OECD region was revised higher by around 1.0 million bpd for the year, and by approximately 0.3 million bpd in 2020. The upward adjustment was mainly the result of better-than-expected data for diesel in OECD Europe and Asia Pacific, as well as for petrochemical feedstock in OECD Americas.

“Oil demand growth in the non-OECD region was revised lower by 0.2 and 0.4 million bpd in first quarter 2020 and second quarter 2020, respectively — around 0.1 million bpd on average for 2020, mainly accounting for weaker-than-expected demand in the other Asia region (including India, Indonesia, Thailand and Singapore),” OPEC stated.

The group estimated total global oil demand at 90.7 million bpd in 2020, with higher demand expected in H2 2020 compared with H1.

In 2021, OPEC said oil demand would partially recover from the downturn exhibited in 2020, and still register historically high growth of around 7.0 million bpd year-on-year.