Oil prospects look promising in 2017
Forecasts for oil demand in 2017 are all looking positive following the agreement reached by OPEC and non-OPEC members to cut supply by 1.7million barrels per day (bpd) to reverse crude oil supply glut that has shaved off over 50% of oil prices.
On December 16, Investment bank Goldman Sachs joined the growing list of analysts that includes WoodMackenzie, the International Energy Association (IEA) to revise crude oil price forecasts as the prospect of real price recovery gathers momentum.
Goldman Sachs raised its oil price outlook for the second quarter of 2017 to $57.50 a barrel from $55 a barrel for U.S. West Texas Intermediate crude. It also raised its price forecast for international benchmark Brent crude to $59 a barrel from $56.50 a barrel.
The IEA similarly said global oil demand for 2017 will grow by 1.3million bpd in its Oil Market Report released December 13, adjusting its earlier forecast that demand and supply in the global oil market would re-balance by the end of 2017.
“If OPEC promptly and fully sticks to its production target, assessed at 32.7 mb/d, and non-OPEC producers deliver the agreed cuts of 558,000 barrels per day outlined on 10 December, then the market is likely to move into deficit in the first half of 2017 by an estimated 600,000 bpd,” states the IEA.
But Nigeria which secured OPEC’s nod to maintain current production levels has an uphill climb to meet 2016 projected crude levels of 2.2million barrels per day as militancy, poor fiscal and regulatory frameworks act as clogs.
Nigeria’s major crude grades are under force majeure – a legal clause that frees a party to a contract from contractual obligations. The NNPC October operations report stated that about 1.15m bpd have been shut-in due to militant activities.
NNPC reported that in September, the closure of the Forcados and Qua Iboe terminals shut in 330,000bpd and 400,000 bpd respectively. An attack and fire outbreak on a major pipeline on September 25, led to the closure of 300,000 bpd Bonny Terminal.
Also 120,000bopd capacity from Brass Terminal was shut in when a force majeure was declared in May, as a result of the sabotage on the Clough Creek –Tebidaba pipeline.
“The Federal government should swiftly address the causes of militant attacks before the ripple of violence becomes even wider; as it is having cross-sectorial effects,” said Chijioke Mama, energy analyst and founder/CEO of EnergyDatar.
Luke Doogan, analyst at West Sands Advisory Limited told BusinessDay “If the government is unable to secure a lasting peace in the oil-producing region, Multi National Oil Companies may begin to divest their holdings as financial losses, and increased operational, security and insurance costs continue to erode their profits.”
Already Chevron Corporation did not feature Nigeria in its $19.8 billion capital and exploratory investments plan for 2017 and there are fears other International Oil Companies may tow the same path.
“Ultimately, the move could inspire a wave of panic offloading by other companies who are influenced by a key market player like Chevron,” said Doogan.
Operators in Nigeria’s oil and gas sector have said that Nigeria has to clarify its oil sector fiscal and regulatory regimes and make it competitive for the sector to thrive. Issues like multiplicity of regulatory regimes, revenue-driven regulation, and poor fiscal framework should be addressed.
The current move by the National Assembly to pass Petroleum Industry Governance bill has been applauded by industry operator.
ISAAC ANYAOGU