By Hamid Ayodeji
A development and governance expert, Dr. Chiwuike Uba, has expressed satisfaction with the decision of the Organisation of Petroleum Exporting Countries (OPEC) under the OPEC+ platform to cut down oil production in the coming months.
Uba, who is also the Board Chairman of Amaka Chiwuike-Uba Foundation (ACUF), in a statement yesterday, said if there was any lesson Nigeria to be learnt from the COVID-19 pandemic ravaging the world and its attendant economic implications, it was for the country to start looking beyond oil.
Therefore, he advised the federal and state governments to commence immediate diversification of the economy.
He said whereas the changes in oil production may lead to a marginal increase in the global oil price, the market would experience a glut almost immediately, due to the continuing decline in oil demand.
He added: “According to analysts from Goldman Sachs, the coronavirus crisis will slash demand by 19 million barrels per day (bpd) in April and May.
“The forecasted figure is way too big compared to the 9.7 million bpd agreed as oil production cut; hence, too little and too late to prevent a decline in prices in the coming weeks as storage capacity becomes saturated.
“There is huge doubt if the cuts would be enough to compensate for a collapse in demand expected to be at least twice the size of the OPEC+ supply reductions.
“Truthfully, the agreed global cut of about 10 per cent in oil production will not offset the recent huge drop in demand occasioned by COVID-19 pandemic,” he added.
This, according to him was made worse by the lack of pronouncement by the President of the USA to cut US oil production after he had said OPEC had not asked him to push domestic oil producers to cut production.
“More so, American oil producers may not cooperate with this cut as it would amount to controlling prices, which would amount to violating the competition law in the US. The USA is currently the world’s biggest crude producer,” he added.
He stated that, according to history, previous oil production cut deals were typically violated by oil producers a few weeks after the commencement of implementation. Mexico already disagreed with the quota allocated to the country and instead opted to reduce the country’s production by 100,000 bpd, Uba revealed.
He further opined that, given that the effective date for the implementation of the deal would be May 1, 2020, countries with high production capacity such as Saudi Arabia, within the next few days would continue to line up tankers – conveniently.
“Until 1st May 2020, such countries would have the spigots wide open. Unfortunately, the production cut deal may not benefit Nigeria in any way.
“First, the expected improvement in the oil price will be minimal and short-lived as a result of the reasons I outlined earlier. Do not forget that Nigeria is already producing below its production capacity for a long time now; hence, affected by both production quantity and price. “Even when Nigeria benefits from an across revenue from the global production cut, the would-be revenue may end up being shared by the national and sub-national governments without real plans for investment to jumpstart the dying economy.
“The demand for oil will not spike in the short term as a result of lockdowns and shutdowns across the world.
“In addition to the closure of manufacturing and service companies, the weather across America and Europe is getting warmer; hence, reducing the demand for gas. Therefore, it has even become more urgent for Nigeria to begin to think about Nigeria without oil,” he added.