Oil Price Falls Below $27/Bbl
For the first time since 2003, the price of Brent crude, the world’s benchmark oil yesterday sold below $28 a barrel, America’s crude grade – West Texas Intermediate (WTI) $26.62 and OPEC basket grade $23.85 a barrel on Tuesday.
Despite over 25 per cent slump in oil price so far this year with the attendant pains and fears, oil drillers and producing nations have continued to pump more oil into an oversupplied market. Oil traders are concerned that the crude oil supply glut could last longer.
The world stock markets are declining. Nigerian stock market last week lost over N455 billion as stock prices failed to rally.
The extent of challenge before the government and the citizens can be explained in the concerns over the implementation of this year’s budget. Currently the government has proposed to borrow $1.8 trillion to fund the budget based on a benchmark of $38 a barrel. Today the price has dropped below $27 a barrel creating a shortfall of over $10 a barrel in the budget benchmark.
The International Energy Agency (IEA) said in a report that the world may soon drown in oversupply. Senior market analyst at Price Futures Group, Phil Flynn said there is also “a record short position in hedge funds and we have the promise of more Iranian oil on the world market. Add it all up and it’s causing the crude-oil market to crater around the globe.”
Iran’s production is expected to ramp up fairly significantly this year. The country projects that its production will increase by 500,000 barrels per day (bpd ) in the coming weeks, along with a further 500,000 bpd in the next few months. The IEA in its monthly oil market report projected it will rise by 0.3 million bpd by the end of the current quarter, and by 0.6 million bpd by mid-year. The EIA expects it to average 3.1 bpd in 2016, an average increase of 300,000 bpd across the entire year.
A university don at the Pan Atlantic University, Dr Austin Nweze confirmed it would be a challenging year for the country. He said the price of oil will get worse before getting better, adding that the return of Iran into the mainstream will worsen the situation.