(Ecofin Agency) - As the prices of oil continues to drop, global oil demand is to increase at a pace of 1.3% in 2016, compared to 1.7% in 2015 according to Ecobank.

There is a possibility that key importers will continue importing for storage while demand support is also expected from some regions like the Middle East & North Africa, Sub Saharan Africa and Latin America.

Oil demand globally has for the past five years risen, attaining an average of 92.86 million bpd in 2015. The Organization of Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA) had predicted a 1.25bpd fall in demand in 2016.

However, OPEC’s production is to increase as a result of greater capacities expected from countries such as Iraq, Iran, Angola and Saudi Arabia as they plan to increase their incomes and preserve market share. Indonesia’s come back to the group, has further increased its output which is estimated to reach 32 million bpd this year.

As a matter of fact, in Q1 of 2016, Iran plans to bring a new crude grade into the market as the sanctions placed on the country by the EU & US has been lifted. The country is likely to add another 500,000 bpd by March or April 2016 in an effort to hit back at Saudi Arabia thereby causing the oversupply to increase.

Libya, is likely to also raise production by an additional 350,000 bpd by June 2016. The creation of a unity government in the country is anticipated to return production to 1.2 million bpd by end of 2016.

Production from Non-OPEC members is to also lose momentum but could still keep on increasing, if sustained by countries like Russia, which reached oil output level of 10.78mbd in 2015. While a continued decline in the prices of oil below $30 could make some fields shut down, Russia’s production is estimated to remain above 10.5million bpd in 2016.

Meanwhile, increase in supply from is expected from Sub-Saharan Africa, Russia, Mexico and Latin America who are Non-OPEC countries. At the lesser oil prices, there is a possibility that US shale producers will reduce production, permitting some decline in US oil production this year.

Therefore, Oil prices are likely to fall further this year. Market instability is expected to rise tremendously with prices likely to be between $24 and $56.

Anita Fatunji