Nigeriaâ€™s already battered economy appears to be headed for more trouble as oil prices tumbled on Monday after a meeting by major exporters in Doha, Qatar, collapsed without an agreement to freeze output, leaving the credibility of the OPEC producer cartel in tatters and the world awash with unwanted fuel.
The countryâ€™s economy has been under heavy clouds following the fall in price of crude in the international markets, a situation that has put the Federal government in a tight position as it lacks funds to fund an unprecedented N6.3 trillion budget which was recently passed by the National Assembly.
The Nigerian National Petroleum Corporation (NNPC) had billed the Sunday meeting by the Organisation of Petroluem Exporting Countries (OPEC) as â€œcrucialâ€ and an opportunity for the country to assert its influence towards bringing about a freeze in crude production, which would have pushed the international price of the product higher than it currently is.
A statement from the Group General Manager, Group Public Affairs Division of the NNPC, Mr. Garba Deen Muhammed, explained that Kachikwu, who travelled ahead to partake in preliminary meetings, was putting heads together with Oil Ministers from other member countries to seek practicable measures to strike a balance between supply and demand of crude oil with a view to arresting the decline in oil price.
Sundayâ€™s meeting was attended by ministers of the 12-member Organisation of the Petroleum Exporting Countries, OPEC, made up of Saudi Arabia, Iran, Iraq, Kuwait, Qatar, Venezuela, Libya, Nigeria, United Arab Emirates, Angola, Algeria and Indonesia as well as non OPEC member countries led by Mexico, Bahrain, Oman and Russia.
But, once again, Nigeria was caught in the middle of a regional politics as tensions between Saudi Arabia and Iran were blamed for the failure of the meeting, which revived industry fears that major government-controlled producers will increase their battle for market share by offering ever-steeper discounts.
â€œOPECâ€™s credibility to coordinate output is now very low,â€ said Peter Lee of BMI Research, a unit of rating agency Fitch. â€œThis isnâ€™t just about oil for the Saudis. Itâ€™s as much about regional politics.â€
Morgan Stanley said that the failed deal â€œunderscores the poor state of OPEC relations,â€ adding that â€œwe now see a growing risk of higher OPEC supply,â€ especially as Saudi Arabia threatened it could hike output following the failed deal.
Oil prices have fallen by as much as 70 percent since mid-2014 as producers have pumped 1 to 2 million barrels of crude every day in excess of demand, leaving storage tanks around the world filled to the rims with unsold fuel.
Sundayâ€™s meeting in Qatarâ€™s capital Doha had been expected to finalize a deal to freeze output at January levels until October 2016 in an attempt to slow that ballooning oversupply.
But the agreement fell apart after top exporter Saudi Arabia demanded that Iran, which was not represented, should also sign up.
The Sunni Muslim kingdom of Saudi Arabia and Shia Islamic republic of Iran compete for influence in the Middle East, where they are currently fighting proxy wars in Syria and Yemen.
Brent crude futures fell almost 7 percent in early trading on Monday before recovering to $40.97 per barrel at 0647 GMT, still down 2.15 percent since their last settlement.
Traders said only an oil worker strike in Kuwait had prevented Brent from tumbling below $40 per barrel, while a cut in U.S. drilling down to 2009 levels had prevented steeper falls there.
Benchmark U.S. crude futures were down more than 5 percent at $38.31 a barrel.
Goldman Sachs said the Doha no-deal could a â€œbearish catalystâ€ for U.S. crude prices, which it forecast would average $35 a barrel in the current quarter.
Analysts said that the failed agreement would also impact the broader economy.
â€œIn the near-term, lower oil prices are bound to weigh on investor confidence and could exacerbate financial volatility,â€ said Frederic Neumann, co-head of Asian economics research at HSBC.
â€œConcerns over financial stability in the energy sector and a further fall in drilling capex are headwinds to growth against an already fragile global economic backdrop.â€
With producers such as Saudi Arabia and Russia pumping near record levels and Iran also increasing output following the lifting of international sanctions against it last January, there is no end in sight for the global oil glut.
Iran was the only OPEC member not to attend the Doha talks.
Despite calls on Saudi Arabia to save the agreement, Riyadh, OPECâ€™s de facto leader, insisted that all 13 members must take part in any freeze.
â€œIt seems that for the Saudis politics and national pride are still more important than the price of oil,â€ said Ralph Leszczynski of shipbroker Banchero Costa.
Iran has refused to stabilize production, seeking to regain market share post-sanctions.
â€œIran has no reason to auto-sanction themselves when they are just trying to get back some of the market share they lost in recent years due the western-imposed sanctions,â€ Leszczynski added.
While tumbling oil prices hurt producers, straining the budgets of energy exporters from Nigeria to Malaysia, they can also benefit consumers.
Asked whether the failed talks could result in further crude supply discounts for his company, Daniel Purba of Indonesiaâ€™s Pertamina, a major importer of refined products, said: â€œWe hope so.â€
As a result of the failure at Doha, Barclays said that Brent would likely average $36 per barrel during the second quarter of this year as a global glut continued unabated.
â€œThis meeting and its outcome should have builtâ€¦ trust among producers for possible future cooperation and coordinated action. In this regard, the meeting was a complete failure,â€ Barclays said, adding that â€œthe failure of the talks gives the market another clear indication that OPECâ€™s relevance in this market environment has faded.â€
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