By Chika Amanze-Nwachuku and Obinna Chima in Washington D.C.
The Secretary General of the Organisation of Petroleum Exporting Countries (OPEC), Alhaji Mohammed Sanusi Barkindo has attributed the upswing in crude oil prices to the recent decision reached by member states at a conference in Algeria to cut production.
Production is expected to be reduced to about 32.5 to 33 million barrels of oil per day from 33.4 million. OPEC kingpin Saudi Arabia, the largest oil producer, is expected to give up 350,000 barrels a day, according to a senior OPEC source quoting the final proposal. Other OPEC nations are expected to cut production too, but for three countries- Iran Nigeria and Libya that Were exempted from the production cuts.
Barkindo, who made a presentation at the G-24 Ministerial Meeting that took place on the sidelines of the ongoing World Bank/IMF meetings in Washington D.C., United States of America expressed optimism that the output cut would result in price rally.
The benchmark Brent crude prices closed at $51.88 a barrel yesterday. Brent has risen more than 10 per cent since the meeting in Algeria.
According Barkindo, the decision taken at the 170th (Extraordinary) Meeting of the OPEC Conference in Algiers came after many rounds of consultative meetings and intensive talks. This, he said underlined the organisation’s continued commitment to a ‘sustainable stability’ in oil markets, for the mutual interests of producing nations, for efficient and secure supplies to consumers, and with a fair return on invested capital for all producers.
Furthermore, he stressed that the decision to opt for an OPEC-14 production target ranging between 32.5 and 33 million barrels a day was focused on the need to accelerate the ongoing drawdown of the stock overhang and bring the rebalancing forward. These, according to him, was vital for market stability.
“At least we have been able to avert a further price slump, after Algiers, as was widely expected by the markets. If you recall, before we went to Algiers, the expectations was that it was going to be another Doha, but thank God we have not witnessed that,” the OPEC scribe told journalists.
“And we should not forget the importance of lessening volatility and sustaining stability for the medium- and long-term given the world’s desire for more oil. However, the situation that has evolved over the past two years or so is putting the future at risk.
“We are currently witnessing a dramatic drop off in oil market investments”, he explained.
For example, global exploration and production spending fell by around 26 per cent in 2015 and a further 22 per cent drop is anticipated this year. Combined, this equates to above $300 billion. We believe the agreement made in Algiers will be beneficial to our economies, to consumers, to the global oil market, and the world economy as a whole.
“The Algiers meeting was very positive, not only for Nigeria, but for the entire group, and if you recall, Nigeria, with the Islamic Republic of Iran, and Libya, are being considered as countries undergoing certain special circumstances, as unfortunate as they are, therefore, should not be treated along with the with the other 11 members,” he added.
Meanwhile, addressing a separate media briefing, the Director, Africa Department, IMF, Mr. Abebe Aemero Selassie, while responding to a question on Nigeria, noted that there was room for gradual policy adjustment by policy makers in Nigeria. According to him, one good thing about Nigeria was that its level of debt was not high.
He also supported the tight monetary policy condition in Nigeria, saying it would help support the revival of the economy.
“But the issue here is to have in place a credible framework that allows private sector and other financier to step in so as to give government the time to smoother the adjustment. What is necessary is to facilitate the reduction in imbalances. What is needed in simple terms is significant fiscal adjustment.
“I think that is very important. Especially on the revenue side taking measures to curtail the fiscal deficit will be very important. This has to be accompanied by tighter monetary conditions more than we are seeing. I think some of the continued weakness of the naira is coming from monetary conditions are not as tight as they could be.
“These has to be accompanied by structural reforms, both fiscal structural issues to try and improve public finance over the medium term but also a lot of the structural reforms that are needed to force a stronger supply response in the country,” he added.