As the global economy recovers due to accelerated vaccination programmes, the Organisation of Petroleum Exporting Countries (OPEC) and its non-OPEC allies reached a deal, yesterday, to phase out 5.8 million barrels per day of oil production cuts by September 2022 as prices hit a two-year high.
The development will see Nigeria’s production quota rising to 1.829 million barrels per day; 400,000 barrels above what it does presently.
Though Nigeria’s June quota was 1.554mbpd, the country produced below the target, pumping only 1.48mbpd last month.
According to the latest S&P Global Platts survey, Nigeria posted the heaviest drop in output in June due to significant operational issues, compared to the 1.55 million recorded in May.
The survey showed that the country produced 1.48 million barrels of crude in June, its lowest level since January, as some of its large oil fields, especially those in the Niger Delta like Bonny, Escravos, Brass River, and Qua Iboe, are pumping well below their full capacity due to either technical or maintenance problems.
Nigeria’s production volume is below the 2021 budget estimate for the year, thus affecting the capacity to earn more, alongside subsidy challenges.
With improvement in production volumes, there are expectations of improved earnings for the country, especially at a time it is overwhelmed by subsidy payments.
In the cartels’ Declaration of Cooperation (DoC) statement, coordinated increases in oil supply from the group, known as OPEC+, will begin in August.
Overall production will increase by 400,000 barrels per day on a monthly basis from that point onward. The International Energy Agency estimates a 1.5 million barrel per day shortfall for the second half of this year, indicating a tight market despite the gradual OPEC supply boost.
OPEC+ agreed in the spring of 2020 to cumulatively cut a historic nearly 10 million barrels per day of crude production as it faced a pandemic-induced crash in oil prices. The alliance gradually whittled down the cuts to about 5.8 million barrels per day.
The 19th OPEC and non-OPEC ministerial meeting noted that worldwide oil demand showed “clear signs of improvement and OECD stocks falling, as the economic recovery continued in most parts of the world” thanks to accelerating vaccination programmes.
International benchmark Brent crude is up 43 per cent year-to-date and up more than 60 per cent from this time last year, with many forecasters expecting to see oil trading at $80 a barrel in the second half of 2021. Brent closed at $73.59 a barrel at the end of the trading day on Friday.
The agreement, yesterday, followed a temporary but unprecedented gridlock that began in early July and saw the United Arab Emirates reject a coordinated oil production plan for the group spearheaded by its kingpin, Saudi Arabia. While the 13-member organisation has seen disagreements before, this was the first public rift between the UAE and Saudi Arabia, which are close allies.
Yesterday’s agreement revealed baseline increases for four of OPEC’s member states and one non-OPEC state beginning in May of 2022: the UAE, Saudi Arabia, Iraq, Kuwait, and Russia, the last of which is not an OPEC member but a leader of OPEC+. The UAE’s baseline for oil production will be raised from 3.16 million barrels per day to 3.5 million barrels per day, though short of the 3.8 million it reportedly initially requested. Saudi Arabia’s baseline will be increased from 11 million to 11.5 million barrels per day.