Amidst weakening global demand for crude and uncertainty over the commitment among OPEC+ producers to extend production cuts, the International Energy Agency (IEA) in its latest forecast expects Brent oil price to average US$33 this year.
While this may come as good news to cheer for Nigeria considering the revised benchmark of the 2020 budget at US$30, we think the gains may be capped by the possibility of further production cuts that the nation may have to sacrifice as part of its pledge to OPEC+ in stabilizing the global oil market.
Notably, the latest forecast of IEA comes at a crucial time when OPEC and a group of other leading oil producers are scheduled to meet tomorrow to deliberate on further production cuts in addition to the current 2.1mbpd.
Furthermore, IEA expects global oil demand to fall in 2020, the first full-year contraction in more than a decade, on the back of shrinking demand from China, which accounted for more than 80% of global oil demand growth in 2019. In addition, jet fuel demand remains hampered by shutdown of airline operations following travel restrictions implemented by several countries across the globe.
On the bright side, the agency projects that the U.S. will return to being a net importer of crude oil and petroleum products in the third quarter of 2020, raising prospects of a medium term stronger recovery in the oil market.
Interestingly, the Energy Department disclosed that the U.S. will join in a discussion of energy ministers from the Group of 20 industrialized nations on Friday this week, just a day after the OPEC + meeting. In our view, this reinforces the commitment of the US in preventing a collapse of the oil market, as President Trump has also been trying to act as a middle man in ending the ongoing price war between the Saudis and Russians in an attempt to support shale producers.
In our view, we expect oil prices to likely receive a boost from the prospects of deeper production cuts at OPEC+ meeing, however we do not think the production cuts will be sufficient in offsetting the widening gap in global demand for oil. Hence, we expect the gains to be short-lived until global economic activities return to normal.