Emmanuel Addeh in Abuja
Strong indications have emerged that the Organisation of Petroleum Exporting Countries (OPEC) may abandon its planned 400,000 barrels per day supply increase in January when its members meet next week to set inventory policy for the month.
The 13-member cartel and its allies were known as OPEC+ are worried as a new virus variant triggered oil’s worst crash in over a year, coupled with, although to a lesser degree, the United States-led coalition’s resolve to release over 80 million barrels from their emergency reserves to cool rising prices.
On Friday, oil prices plunged about $10 a barrel, their largest one-day drop since April 2020, as the new variant of the virus scared investors and added to concerns that a supply surplus could swell in the first quarter.
The World Health Organisation (WHO) has also designated the new variant as “of concern,” while Britain, Guatemala, and European countries are among those to restrict travel from southern Africa, where the variant was detected.
Brent crude fell $9.62, or 10.5 per cent, to $72.12 a barrel in the afternoon, while US West Texas Intermediate (WTI) crude was down $9.36, or 11.9 per cent, at $68.15 a barrel, raising concerns over another massive fall in the coming months.
Before the sudden turn of events, OPEC had been struggling to meet existing targets under its agreement to gradually increase production by 400,000 bpd each month.
But Nigeria, a very active OPEC member had said that even if prices fell to between $50 to $60, it won’t be much of an issue, with the country’s oil benchmark for the 2021 budget being $40.
Nigeria has failed for months to meet its allocation, due largely to waning investment, ageing upstream infrastructure, and disruptions by some local host communities.
But the Group Managing Director of the Nigerian National Petroleum Corporation (NNPC) last week assured that by the year’s end, Nigeria should be able to produce about 1.7 million bpd.
However, OPEC delegates told Bloomberg that the 23-nation alliance led by Saudi Arabia is now leaning toward abandoning the plan for a modest production hike as the group was already considering a pause after the US and other high consumers announced the release of the emergency oil stockpiles.
In addition, Saudi Arabian Energy Minister, Prince Abdulaziz bin Salman, has warned that global crude markets are poised to return to surplus next month and that demand is at risk from new infections.
A document showing OPEC’s internal research further indicated that a substantial excess may form early next year if OPEC continues to gradually release the 400,000 bpd every month coupled with the decision of the US coalition and outlook now looks even grimmer with the new Covid-19 variant.
“The emergence of the new virus off-shoot, with its obvious risks to fuel consumption, could make an output freeze much easier to defend,” Bloomberg projected.
Still, it’s unclear whether such a hiatus would receive full backing from the group, which meets each month to review the restoration of suspended output in gentle increments.
During the week, OPEC confirmed that it was seeing signs of an oil supply surplus building from next month so its members and allies will have to be “very, very cautious” when they review output policy at the regular monthly meeting.
“The surplus is already beginning in December. These are signals that we have to be very, very careful,” the group’s Secretary-General, Nigerian-born Sanusi Barkindo, said on the sidelines of an energy conference in Vienna.
However, Barkindo declined to say if he thought OPEC+ would stick to the existing policy when it meets on December 2.
