The production policies of the non-member countries of the Organisation of Petroleum Exporting Countries (OPEC+) and pandemic’s path may drive down global oil prices marginally in the first quarter (Q1) of 2021 according to Fitch Ratings report.
The report indicates that as many regions, including European countries have re-introduce mobility restrictions.
Nigeria, Africa’s largest oil producer and member, OPEC, relies heavily on crude oil earnings to fund its national budget.
Experts say a decline in global oil demand would inevitably stifle the implementation of this year’s N13.588 trillion budget assuming three per cent annual growth, oil prices of $40 a barrel and 1.86 million barrels a day of crude production.
Fitch said the OPEC oil production policies and the pandemic’s path would continue to drive global oil prices in 2021.
“Although demand remains subdued because of the coronavirus pandemic, oil prices have increased materially since October 2020 due to OPEC+ production cuts, reduced oil inventories and increased investor optimism, supported by the vaccine roll-out in many countries,” it said.
However, the agency warned that oil prices could still come under pressure, particularly in the first half of 2021 “before effective vaccination programs are fully underway.”
“The positive effects of vaccination programmes on the oil demand recovery may not be visible for several months until a critical mass of the population is inoculated,” Fitch said, adding that mass vaccination is likely to lead to a sustainable improvement in oil demand, although there is some uncertainty about the effectiveness of the vaccines against the most recent virus mutations.
Oil prices continued to drop, having reached 11-month highs, as investor fears over weak demand is fueled by negative vaccine results, while a higher US relief package hopes limit price declines.
Although, the International benchmark Brent crude traded Tuesday at $56.00, it posted a 0.09 per cent increase from Monday when it traded at $54.84 per barrel.
While the number of COVID-19 cases worldwide has now reached over 97.6 million, according to the latest data from Johns Hopkins University, investors have been keeping tabs on a large rollout of COVID-19 vaccines to the global population, with expectations of a recovery in oil consumption to pre-pandemic levels.
The International Energy Agency (IEA) forecast that the global oil demand would increase by six per cent in 2021. The Agency also said an acceleration in economic activity and stronger demand is only expected in the second half of the year and not until the widespread vaccination of a certain number of the population is made.