Oil prices closed the week at $40 holding steady from the same price a week ago an indication that the worst is gone. For the better part of 2016, predictions have been gloomy for oil price and by extension oil producing countries like Nigeria.

Analysts had predicted an oil price of $20 and at some point it seemed inevitable that we will get to that level. Oil prices did slip below $30 in January 2016 and it seemed we were going to be stuck in the 20’s in no time. However, things seemed to have changed as oil price have now staged a remarkable rebound. The International Energy Agency is now reporting that Oil prices may have bottomed out. Here are the reasons they gave;

Production declines

According to International Energy Agency, Oil prices might have bottomed “as production declines in the United States and other non-OPEC producers accelerate and an increase in Iranian supply has been less than dramatic”. According to the IEA, “OPEC crude oil production eased by 90 kb/d in February to a still-robust 32.61 mb/d with losses from Iraq, Nigeria and the United Arab Emirates partly offset by a substantial rise in flows from post-sanctions Iran. Saudi Arabia, OPEC’s largest producer, held supplies steady”.

Saudi and Russia

Another plausible reason could be the fact that Saudi Arabia and Russia had agreed to a somewhat freeze in oil output. Both countries agreed last week to a freeze production to January 2016 levels sending oil prices higher for a brief period after the announcement.

Low oil prices

Reuters also reports that lower oil prices had begun to take its toll on oil producers especially in the US. The IEA also opines that Non-OPEC production in 2016 is estimated to fall by 750 kb/d, to 57.0 mb/d, 100 kb/d less than foreseen in last month’s Report. 
An anticipated fall in production means supply glut could soon abate this triggering a price increase. They also reported that U.S. production alone could decline by 530,000 bpd this year.

IRAN

The fear that Iran’s return to the oil market will increase the glut is also thought to have been over estimated. Analysts had estimated that Iran will add about 1 million bpd to the global oil supply. According to the IEA ” Iran’s return to the market has been less dramatic than the Iranians said it would be; in February we believe that production increased by 220,000 bpd and, provisionally, it appears that Iran’s return will be gradual,” . Iran also gave indications that it was inclined to an oil freeze but will like to do so once it hits 4 million bpd.

Lower oil prices

According to Reuters, IEA also believes that we may now have seen the end of the lower lows for oil prices. “For prices there may be light at the end of what has been a long, dark tunnel, but we cannot be precisely sure when in 2017 the oil market will achieve the much-desired balance. It is clear that the current direction of travel is the correct one, although with a long way to go,” the IEA said.

India Effect

The IEA also expects India’s growth will continue to support the demand for Oil. “We expect India and other smaller non-OECD Asian economies and the Middle East to provide most of the 2016 growth. The foundations for global demand growth are sound, but not rock-solid,” the IEA said. India is currently the fastest growing economy in the world, growing at about 7%.

The post above and its ensuing comments, if any, is purely the opinion of the writer(s). It therefore should never be considered as an investment advise of any sort. If required, readers should please consult a competent professional financial adviser for any investment decision.