Relief for Nigerian economy as OPEC extends oil output cut by 9 months to squeeze glut
Chances of sustaining the economy and even driving the 2017 budget got brighter yesterday, Thursday following the decision of Organisation of Petroleum Exporting Countries (OPEC) to extend cuts in oil output by nine months to March 2018.
Economic analysts are upbeat that granted steady production in the Niger Delta, coupled with the rising output and continued enjoyment of cut exemptions, the economy can rebound and exit recession before March 2018.
OPEC members’ delegates hinged their decision on the needed drive to keep global glut of crude after seeing prices
Before the first cut approval by the now 14 member cartel following admission of Equatorial Guinea, it has been battling global glut of crude after seeing prices halve and revenues drop sharply in the past three years.
The cuts are likely to be shared again by a dozen non-members led by top oil producer Russia, which reduced output in tandem with OPEC from January.
OPEC’s cuts have helped to push oil back above 50 dollars a barrel this year, giving a fiscal boost to producers, many of which rely heavily on energy revenues and have had to burn through foreign-currency reserves to plug holes in their budgets.
Oil’s earlier price decline, which started in 2014, forced Russia and Saudi Arabia to tighten their belts and led to unrest in some producing countries including Venezuela and Nigeria.
The price rise this year has spurred growth in the U.S. shale industry, which is not participating in the output deal, thus slowing the market’s rebalancing with global crude stocks still near record highs.
By 1150 GMT (7:50 a.m. ET), Brent crude had fallen 1.3 per cent to around 53 dollars per barrel as market bulls were disappointed OPEC would not deepen the cuts or extend them by as long as 12 months.
OPEC oil ministers were continuing their discussions in Vienna after three hours of talks. Non-OPEC producers were scheduled to meet OPEC later in the day.
In December, OPEC agreed its first production cuts in a decade and the first joint cuts with non-OPEC, led by Russia, in 15 years.
The two sides decided to remove about 1.8 million barrels per day from the market in the first half of 2017, equal to two percent of global production.
In spite of the output cut, OPEC kept exports fairly stable in the first half of 2017 as its members sold oil from stocks.
The move kept global oil stockpiles near record highs, forcing OPEC first to suggest extending cuts by six months, but later proposing to prolong them by nine months and Russia offering an unusually long duration of 12 months.
“There have been suggestions (of deeper cuts), many member countries have indicated flexibility but … that won’t be necessary,” Saudi Energy Minister Khalid Al-Falih said before the meeting.
He added that OPEC members Nigeria and Libya would still be excluded from cuts as their output remained curbed by unrest.
Falih also said Saudi oil exports were set to decline steeply from June, thus helping to speed up market rebalancing.
OPEC sources have said the Thursday meeting will highlight a need for long-term cooperation with non-OPEC producers.
The group could also send a message to the market that it will seek to curtail its oil exports.
“Russia has an upcoming election and Saudis have the Aramco share listing next year so they will indeed do whatever it takes to support oil prices,” said Gary Ross, head of global oil at PIRA Energy, a unit of S&P Global Platts.
OPEC has a self-imposed goal of bringing stocks down from a record high of 3 billion barrels to their five-year average of 2.7 billion.
“We have seen a substantial drawdown in inventories that will be accelerated,” Falih said. “Then, the fourth quarter will get us to where we want.”
OPEC also faces the dilemma of not pushing oil prices too high because doing so would further spur shale production in the United States, the world’s top oil consumer, which now rivals Saudi Arabia and Russia as the world’s biggest producer.
“A nine-month extension is insufficient at shale’s current trajectory. The strategic challenge of shale is still to be addressed,” said Jamie Webster, director for oil at Boston Consulting Group.
