Fresh hope of a quicker recovery is on the horizon for cash-strapped Nigeria as the World Bank has raised its 2016 oil price forecast up from the previous level of $37 per barrel to a new height of $41.
The crude oil price at the international market according to the Central Bank of Nigeria (CBN) data yesterday was between $43 and $44 per barrel.
Despite the country’s diversification efforts, crude oil remains the major income earner for the country with the sub-nationals heavily depending on revenue from oil sales at the monthly Federation Accounts and Allocation Committee (FAAC) to fund their activities now reeling in pains since last year when oil prices took a downward plunge as low as $25 per barrel. This followed global slow growth when Nigeria’s 2016 budget benchmark price estimate was fixed at $38 per barrel.
However, the World Bank yesterday said crude oil market rebounded to $40 per barrel in April following production disruptions in Iraq and Nigeria and a decline in non-Organisation of the Petroleum Exporting Countries (OPEC) production, mainly U.S. shale.
A proposed production freeze by major producers failed to materialise at a meeting in mid-April.
The World Bank explained that the review of the forecast followed improving market sentiment and a weakening dollar, declaring that its new 2016 forecast for crude oil prices is now $41 per barrel from $37 per barrel, pointing out that Commodity Markets Outlook, as an oversupply in markets, is expected to recede.
“We expect slightly higher prices for energy commodities over the course of the year as markets rebalance after a period of oversupply,” said John Baffes, Senior Economist and lead author of the Commodities Markets Outlook.
“Still, energy prices could fall further if OPEC increases production significantly and non-OPEC production does not fall as fast as expected.”
All main commodity indexes tracked by the World Bank are expected to decline in 2016 from the year before due to persistently elevated supplies, and in the case of industrial commodities – which include energy, metals, and agricultural raw materials – weak growth prospects in emerging market and developing economies.
Energy prices, including oil, natural gas and coal, are due to fall 19.3 per cent in 2016 from the previous year, a more gradual drop than the 24.7 per cent slide forecast in January.
Non-energy commodities, such as metals and minerals, agriculture, and fertilizers, are due to decline 5.1 per cent this year, a downward revision from the 3.7 per cent drop forecast in January.