Nigeria, like two other member countries of the Organisation of Petroleum Exporting Countries (OPEC), will enjoy an exemption in production cut as the cartel tries to steady oil prices slump in November, writes Chineme Okafor
After about a reported 48 hours of consultation amongst its members in Algiers, capital of Algeria, the Organisation of Petroleum Exporting Countries (OPEC) last Wednesday agreed to effectively cut their oil production volumes to 32.5 million barrels per day (mbpd) from around 33.24mbpd, thus shaving off about 0.74mbpd.
News of the production cut by the oil cartel came to the oil industry as a landmark deal, one which will see output levels for each member country determined in November 2016, but will also exclude three of its members – Nigeria, Iran and Libya from participating in the output cuts due to their peculiar production challenges.
Reportedly coming for the first time in about eight years, the deal according to AFP, was largely successful on the back of Saudi Arabia softening its stance on its arch-rival Iran as well as on the mounting pressure from low oil prices.
While the group would reduce their output to 32.5mbpd, and determine how much each country will produce at the next formal meeting, it also hopes to extend an invitation to non-OPEC countries such as Russia, to join in the output cuts, at least to buoy its desire to see some improvements in prices.
Deal Gives Nigeria a Rare Opportunity
Coming at a time Nigeria is faced with the steady disruptions of production from her oil fields, the OPEC deal has provided Nigeria an uncommon opportunity she perhaps did not look out for.
The deal, according to reports, which were further confirmed by the country’s ministry of petroleum resources, will exempt Nigeria from participating in the output cuts. It will perhaps allow her produce at levels previously allowed to her for the simple reasons that she has had significant drop in her production from February 2016 when militants in the Niger Delta took to destroying oil facilities in the region.
From a 2016 budget production benchmark of 2.2mbpd, the country’s production slipped to about 1.6mbpd and then 1.75mbpd as recently disclosed by the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu.
Kachikwu had said that so far the ceasefire negotiated by the government with the Niger Delta militants has enabled production from oil fields in the region to come up to 1.75mbpd. He added that this was however expected to rise to 1.8mbpd by October and then 2mbpd by December 2016. The OPEC deal could be a sweetener to this plan and expectation.
In a statement acknowledging its delight with the deal, the ministry predicted the success of the deal to the loosely tied role Nigeria and some others played in refocusing OPEC to work harmoniously to identify the needs and challenges that are peculiar to it and surmounting them.
It explained that one of the key challenges was the low price of oil in the international market and how it had largely affected the economies of its member countries.
The statement noted that Kachikwu led the request for the exemption of Nigeria from the production cut, adding that the concession was given considering the recent challenges the country has been through.
Due to vandalism of oil and gas infrastructure, Nigeria has been unable to produce oil optimally in recent past. Iran, which just had its economic sanctions lifted earlier in the year, and Libya, which is politically unstable had also seen their production levels impacted.
“This deal will obviously enhance the prospects for the energy industry with the impacts already being felt as oil price jumped more than five per cent in New York after the agreement was reached.
“A steady increase in oil prices, which is one of the advantages that the deal will produce would most likely contribute positively to the revival of the economies of member countries presently undergoing challenges which Nigeria is a part of,” said the ministry in its valuation of the benefits of the deal to Nigeria.
Oil market reacts
But while details of the production cut deal are still being worked out by OPEC members, oil prices jumped more than five per cent after the meeting in Algeria.
It, however, soon reclined again on Thursday when Brent crude, the global oil benchmark, fell by 0.8 per cent to $48.85 a barrel, while West Texas Intermediate futures were trading down 0.5 per cent at $46.85 a barrel.
Reports indicated that many market watchers said they wanted to see the details of the deal before a sensible judgement on its impacts could be made.
“We don’t know yet who is going to produce what. I want to hear from the mouth of the Iranian oil minister that he is not going to go back to pre-sanction levels.
“For the Saudis, it just goes against the conventional wisdom of what they’ve been saying,” the AFP quoted Jeff Quigley, the director of energy markets at Houston-based Stratas Advisors to have said.
It also quoted Saudi Arabia’s Energy Minister, Khalid al-Falih, to have stated that Nigeria, Iran, and Libya would be allowed to produce “at maximum levels that make sense.”
Al-Falih’s reported assertions represent what market experts describe as a strategy shift for Saudi Arabia which had said it would reduce output to ease a global glut only if every other OPEC and non-OPEC producer followed suit.
According to the report, Iran had also argued that it should be exempted from such limits as its production recovers after the lifting of EU sanctions earlier this year.
Analysts also argued that the scope of the reduction, which is between 200,000 and 700,000 barrels a day was inadequate to arrest the supply growth and rebalance the supply-demand dynamics.