The International Monetary Fund, IMF, has warned that the economies of oil dependent countries would not come to a balance any time soon.
In a newly published report on Tuesday, the Body said that the “new normal” in oil will delay the economic recovery in oil-dependent countries like Nigeria.
IMF’s declaration may come as a shock to Nigeria, especially because the country’s economy is still dependent on oil revenues, and because the government is hoping oil prices would increase soonest.
OPEC is desperately trying to get its members to agree on a freeze quota to be presented by beginning of next month.
Among factors contributing to the prolonged depression in Nigeria is not just the persistent glut, but also the constant output from shale in the U.S., the notable decline in crude oil consumption, and the strong greenback, in which international oil futures are priced.
Also, demand for crude, although growing, is not growing fast enough to offset the combined effect of the headwinds, the IMF noted.
Worth pointing out is the fact that there have been low investments into the economy by the energy industry since oil price crashed globally.
Last week, Wood Mackenzie warned that further cuts will need to be made this year and next to the tune of some US$370 billion, which will bring about a 3-percent decline in output this year, and a 4-percent drop next year.
According to Oil Price, the above figure however, is investment from the international super majors, and might be construed as good news for the struggling oil-dependent economies. In fact, any chance of a production decline on a global scale is good news for Nigeria.
However, IMF seems to be skeptical about the chances of a solid enough freeze deal occurring.
The report emphasised on the resilience of shale producers and their constant work on lowering production costs to improve breakeven levels.
As a matter of fact, the U.S has a number of drilled but uncompleted wells, which can be completed in a matter of weeks, immediately adding more crude to the market.
On the demand side, China is seen as a central factor for the pessimistic outlook. Its economy is no longer growing at the rate from five-ten years ago and Beijing is shifting its economic model to a more service-based one, which will drive down the country’s hunger for commodities. Emerging markets as a whole are a driver of demand and if economic growth there slows, so will the increase in oil demand, according to the IMF.
The reverse is the case of Nigeria whose economy is dependent on importation of goods and services.
According to IMF, this year’s demand growth rate will be 1.2 million barrels, and it will stay at this level over 2017 unless some radical change in the commodity’s fundamentals occurs.
Yet, an increase in price depends on OPEC’s freeze/cut agreement, whose chances of success are getting slimmer by the day.
At the weekend, Algeria’s Energy Minister said he was confident the organization would manage to hammer out a deal.
“There will be no return on the Algiers agreement. Now, we are in application of this agreement. The high-level technical committee is working on it. The Algiers agreement has not been called into question,” Nouredine Bouterfa told the country’s state news agency.


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