As cautious optimism trails oil demand recovery, the Organization of the Petroleum Exporting Countries (OPEC) has warned countries to be mindful of sovereign debt levels, rising inflationary pressure and central bank responses.
OPEC Secretary-General, Mohammad Sanusi Barkindo, during the 181st meeting of the cartel’s conference and 18th OPEC and non-OPEC Ministerial Meeting (ONOMM), noted that though oil demand was hit by renewed lockdowns in the early part of 2021, significant growth in the second half of the year is expected.
OPEC’s warning affirms concerns that African political leaders should explore other funding options and scale up debt management transparency.
The Director-General of the World Trade Organisation (WTO) and ex-Minister of Finance, Dr. Ngozi Okonjo-Iweala; President of the African Development Bank (AfDB), Dr. Akinwunmi Adesina; Governor of the Central Bank of Egypt (CBE), Tarek Amer and other regional economic stakeholders, had recently expressed concern about rising national debts, warning that majority of countries in the continent face a high risk of falling into a debt trap.
According to Okonjo-Iweala, many African countries’ debt to gross domestic product (GDP) ratio ballooned during COVID-19 and the oil market crisis. For instance, she said, Nigeria’s debt to GDP moved up from 29 per cent to 35 per cent during the recent lull in the international crude market.
Recent data shows that the Federal Government spent N1.02 trillion on domestic and foreign debt service in the first quarter of 2021, representing a 35.7 per cent year-on-year increase compared to N753.7 billion spent in the corresponding period of 2020.
A cursory look at the data released by the Debt Management Office (DMO) reveals that N612.71 billion was spent on domestic debt service, while N410.1 billion was expended on servicing external debt.
Barkindo noted that it was vital that oil producers not only keep their eyes on the coming months, but 2022 too, considering the prevailing circumstances in the oil market.
According to him, while it may appear in countries with high rates of vaccinations that the pandemic is behind us, the pace of the rollout of vaccines globally has been extremely uneven.
“Globally, there are approximately 350,000 new infections per day and over 8,000 deaths. Furthermore, the ‘Delta Variant’ has caused a sharp rise in cases even in countries with high vaccination rates. The Delta variant is currently considered a major threat in many countries to eliminate COVID-19.
“Given these abiding uncertainties, the OPEC Secretariat has developed scenarios to provide possible indications of the direction of the market for the remainder of 2021 and 2022. In less than a year from now, at the end of April 2022, the current supply adjustments will potentially expire.
“While the Declaration of Cooperation (DoC) affords us the flexibility to respond to market developments as appropriate, our early numbers for 2022 indicate a significant imbalance between supply and demand from the 2Q22 onwards. In the 2Q, supply is forecast to exceed demand by 5.4 mb/d; in the 3Q, by 3.6 mb/d and in the 4Q by 2.3 mb/d.
“Given all of the painful lessons and sacrifices over the last 16 months, this is a scenario that none of us would like to see materilaize. We should begin planning for the next chapter in the indispensable format that is the DoC process, beyond April 2022”, he added.
For more than a year, OPEC+ has kept a tight grip on oil production, helping to lift prices by around 85 per cent since November to about $75 a barrel for Brent crude, the international benchmark, and $74 a barrel for WTI.
Some of the group’s members, including Russia and the United Arab Emirates, are expected to lean toward increasing production at a time when oil consumption is rising as economies recover from the pandemic.
Some oil officials also worry that keeping tight controls on production can be counterproductive because relatively high prices — some analysts are projecting they could eventually, reach $100 a barrel — will encourage competitors like shale oil drillers in the United States to increase output, cutting into the market share of the OPEC Plus countries.
