Nigeria’s projected increase in oil production will potentially offset the production cuts proposed by the Organisation of Petroleum Exporting Countries (OPEC) to reduce the level of inventory in the oil market for the recovery of oil prices, THISDAY’s investigation has revealed.
OPEC had last Wednesday in Algiers, Algeria, agreed to a landmark deal to effectively cut production to 32.5 million barrels per day from around 33.24 million, the first time since 2008 that the cartel would be reaching such decision.
Under the agreement, each member country will cut production to a level that would be determined in the next meeting of the cartel in November 2016.
But OPEC member countries reached a consensus that Iran, Nigeria and Libya would be exempted in the agreement.
While Iran just had its economic sanctions lifted earlier in the year, Libya and Nigeria have had some of their oil facilities damaged due to internal unrest in recent months.
THISDAY, however, gathered from a top official of NNPC that if Nigeria ramps up her production lost to militancy, the increased output will offset the volumes that OPEC has proposed to cut, thus wiping the gains of the OPEC deal.
“Nigeria has lost 700,000 barrels per day lost to militancy, according t official figures and is seeking to bring back this volume to the market. OPEC also wants to reduce the inventory in the market by about 800,000 barrels per day. So, if OPEC removes 800,000 bpd from the market and allows Nigeria to bring back her lost production, excess inventory will remain in the market,” he explained.
“OPEC has agreed that Nigeria will not be bound by any decision to cut production given the level of production outages the country has suffered in the hands of the Avengers and other militant groups in the Niger Delta. But if OPEC reduces crude in the market and at the same time allows Nigeria and other members to bring more crude to the market, the production cuts deal will have no impact on the oil price because the excess inventory in the market will remain
“It is a good decision for members to reduce the level of inventory in the oil market. If the law of market forces of demand and supply applies, then when the inventory is reduced, the price will go up and Nigeria will benefit significantly because the slump in prices has hurt government’s revenues significantly,” he explained.
“We should not forget that before the attacks around February, our production was above 2 million barrels per day. So, if OPEC allows us to reach our February level before we are given a new production quota, then we are going to add not less than 700,000 bpd to the market and the efforts of OPEC to reduce crude in the market will be in vain,” he said.
“Again, we should not forget the non-OPEC members that control over 60 per cent of the market. Let us just hope they will not sabotage the efforts of OPEC by increasing production to reduce the impact of OPEC’s cuts in the market. If they decide to take more oil to the market, the efforts of OPEC will be in vain,” he added.
Spokesman of NNPC, Mr. Muhammad Garuba Deen could not be reached to speak on the matter as he did not respond to text messages.
The agreement had immediately led to the largest gains in crude prices since April on Wednesday, but the prices dropped the following day as investors asked whether the cartel’s members would stand by an agreement.
There were also concerns that OPEC may not have significant influence on oil market as it accounts for only 30 per cent of the global market.
The scope of the reduction—between 200,000 barrels a day to 800,000 barrels a day—was also considered inadequate to reduce the inventory in the market and force the price to rebound.