Oil slides to five-and-a-half-year low at $53

Oil slides to five-and-a-half-year low at $53

The prices of crude oil in the international market declined further on Monday raising fears that the Organisation of Petroleum Exporting Countries, which has seen its influence on the world oil markets dwindled in recent months, could face significant repercussions.

Global benchmark Brent and United States’ benchmark West Texas Intermediate dropped to fresh five-and-a-half-year lows on Monday. Brent fell $3.33 to $53.03 per barrel and the WTI dropped by $2.27 to $50.42.

The further dip in the prices occurred on the back of lingering concerns about a surplus of global supplies amid weak demand, exposing oil-exporting countries such as Nigeria to further risks.

OPEC, which supplies a third of the world’s crude oil, had at its meeting on November 27, 2014 decided to maintain the production level of 30 million barrels per day, as was agreed in December 2011.

The decision not to cut production, which was not expected in many quarters, immediately triggered a steep fall in prices.

The 12-member oil cartel had in November resolved that its next ordinary meeting would convene in Vienna, Austria on Friday, June 5, 2015.

The Vice President and Head of Energy and Natural Resources, FBN Capital Limited, Rolake Akinkugbe, in an emailed response to questions from our correspondent, said, “OPEC’s clout has been significantly diluted since the price fall deepened and accelerated in the fourth quarter of 2014. But it will be extremely premature to suggest that the plunge will lead to the dissolution of the cartel.”

She said the price point at which OPEC would be dissolved was much higher than the current $54 per barrel, since the majority of the organisation’s members had budget break-even points above $90 per barrel.

Akinkugbe said,“If the current OPEC strategy of waiting-it-out works, and the US shale production growth grinds to a halt, then OPEC would have scored at least a short-term victory, albeit a painful one, for some of its members. At the current $54 per barrel region, some US shale producers are already in treacherous waters.

“In addition, it is also worth noting that within OPEC itself, the balance of power in recent years has shifted to those countries that have the capacity to boost production. Saudi, Qatar and Kuwait are prime examples.”

On the possibility of an emergency meeting of the cartel, she said, “I think a review of OPEC’s current output stance is very possible prior to June. In order to review production levels and agree on the extent of cuts, a meeting has to happen.

“Six months is a long time to wait in the rapidly evolving oil price environment, which is pretty volatile. So, a meeting before the June date is not altogether implausible.”

The Founder of Mak Mera Group and a former Director of Research, OPEC, Chief Mike Olorunfemi, who described the situation as dicey, however, said that Saudi Arabia was not prepared to do anything about the falling oil prices as it wanted to get to a point where further investment in shale oil, especially in the US, would not be profitable.

“There is no doubt that there will be an emergency meeting if the price continues to fall,” he said.

For energy specialist at Ecobank, Mr. Dolapo Oni, OPEC is likely to face significant repercussions in the coming months as oil prices decline further, adding that the price could slump to $50 oil by mid-January at the current rate.

“Some of its member countries are in real danger. Venezuela may default on its sovereign bond without help. Nigeria is likely to borrow more as its budget revenue is now looking to be likely short due to oil prices being much lower than the oil benchmark. Angola is already announcing plans for fiscal adjustments,” he said.

Oni added that this was not likely to be the end of OPEC, not now or in the nearest future.

He added, “The world still needs OPEC but a much more stronger and diverse OPEC, with more members and a bigger share of the oil market.”