â€¢ Says uncertainty in oil market may affect 2017 budget implementation
â€¢OPEC predicts lower demand for its oil in 2018
Ejiofor Alike in Lagos and Chineme Okafor in Abuja
The Minister of State for Petroleum Resources,Dr. Ibe Kachikwu, has stated that Nigeria will in due time join in the crude oil production cut initiated by the Organisation of Petroleum Exporting Countries (OPEC) and non-OPEC members led by Russia to stabilise the market, adding however, that the countryâ€™s production levels were still quite unpredictable as to guarantee when the country would join the pact.
The petroleum minister has also raised the alarm that the growing uncertainties in the global oil market would affect Nigeriaâ€™s execution of its 2017 budget, noting that the country had already come short of the projected oil production levels upon which the budget was predicated.
Kachikwuâ€™s position is coming as the oil cartel has stated that its oil production jumped in June and that the world demand for its crude will decline next year as rivals pump more to create a market surplus in 2018, despite the output cut.
Speaking yesterday in Abuja during a press briefing on developments in the oil market, the minister restated that Nigeria was committed to the OPEC deal, and would do whatever would be required to keep it intact.
He, however, pointed out that the country has to watch her oil production to get a predictive level of comfort to voluntarily join.
â€œWe are fairly in consensus of what our position is, there is no disagreement on that, but just to set the record straight, the price of oil today is hovering around $44.70 cent per barrel, so there is a bit of upsurge trajectory which is good, which means the price for Nigeria is probably in the $46 type range. Definitely below the $50 mark which is where weâ€™ll feel comfortable and a lot of the reasons for this are a lot of aggressive shale production, and obviously barrels coming out from Nigeria and Libya because of the exemption, but I needed to clarify this first, it is true that Nigeria has begun to recover but that recovery has been gradual,â€ he said.
He noted that: â€œOver the last one and half months, weâ€™ve basically began to recover some of our assets that were vandalised and weâ€™ve been getting a lot more cooperation from the militants that they are letting us continue to try and grow those barrels, but that recovery is going to be gradual, weâ€™ll still have below the benchmark set for us by OPEC and I think that over the next one or two months, hopefully we can get to that point when we can say the recovery has been tested, is systemic, and predictable.â€
â€œWe need to watch that for a couple of months so that we can get to a predictive comfort and then we voluntarily go to OPEC and see how we can contribute, but make no mistake about it, Nigeria is a very firm member of OPEC, weâ€™ve been very active in this organisation for 46 years and weâ€™ll continue to be very active. Weâ€™re some of the brain behind some of the cut analysis and strategies that was got from Saudi Arabia and the rest,â€ Kachikwu added.
Speaking on the 2017 budget, Kachikwu explained that a couple of capital projects in the budget may be affected by this development.
He, however, explained that the Ministry of Finance was working on measures to cushion the impacts of the shortfall from oil production on the budget.
The minister added that while the oil production benchmark in the budget was 2.2 million barrels per day (mbpd), the country is currently producing about 1.7mbpd of oil without condensate, and was still within the price band of $42.50 per barrel which the budget has.
â€œIn terms of the budget impact, definitely, I mean, it is predicated on the number of 2.2 million barrels per day and a price index of $42.50. Within the price cap, I think weâ€™re still reasonably within range, obviously weâ€™ve lost quite a lot of months, some months, at least two or three in which we didnâ€™t produce what the budget had projected, so there is definitely going to be differential,â€ said Kachikwu, in response to a question on the likely impact of the uncertainties on Nigeriaâ€™s 2017 budget,â€ Kachikwu said.
He further clarified: â€œBut like you know, the Ministry of Finance is aggressively looking for ways to cover some of these shortfalls, part of that is efficiency, how do we cut down our expenditure.
â€œObviously, certain capital items will be affected, if we donâ€™t have money, we canâ€™t do certain capital projects that we have in the budget. There is no gain saying the fact that budget will be impacted but we are working hard with the Federal Executive Council to see how we can forecast or predict that sort of impact and see how we can recover,â€ Kachikwu added.
In a related development, OPEC said that the world demand for its crude will decline next year as rivals pump more to create a market surplus in 2018.
Giving its first 2018 forecasts in a monthly report, the OPEC said yesterday that the world will need 32.20 million barrels per day (bpd) of crude from its members next year, down 60,000 bpd from this year.
OPEC officials nonetheless remain upbeat on the outlook.
â€œWe remain very optimistic … (about) helping the market to rebalance itself,â€ OPEC Secretary-General, Mohammad Barkindo said at an industry conference in Istanbul.
Crude oil price rose above $48 per barrel yesterday as a US report of falling inventories in the United States raised hopes that the glut is easing.
Under the supply deal, OPEC is curbing output by about 1.2 million bpd, while Russia and other non-OPEC producers are cutting half as much, until March 2018.
The Nigerian and Libyan recovery has prompted talk among producers about asking them to join the supply deal.
Barkindo downplayed expectations this would be addressed soon, saying a meeting on July 24 in Russia of some OPEC and non-OPEC ministers would discuss Nigerian and Libyan output only at a technical level.
OPEC production figures in the report are for the now 14-member group. Equatorial Guinea joined in late May.
OPEC production has increased in recent weeks, in part due to the recovery in Libya and Nigeria, which were exempted from the supply cut as domestic conflict had curbed their output.
OPEC said its output rose by 393,000 bpd in June to 32.611 million bpd, according to figures from secondary sources the organisation uses to monitor supply. The gain was led by Nigeria and Libya, with extra barrels also from Saudi Arabia and Iraq.
â€œWe are fully satisfied that member countries are maintaining a very high level of conformity,â€ Barkindo said.