Nigeria to earn more as OPEC deal begins

There are indications that Nigeria will begin to earn more revenue as agreement by members of Organisation of Petroleum Exporting Countries (OPEC) to cut production with about two million barrels of crude oil per day as commenced.

Both OPEC and non-OPEC members like Russia, have agreed to cut production as the international market was believed to have been flooded in 2016, thereby causing glut in the market.

The 13-member OPEC on November 30, in Vienna, rectified their Algiers plan to commence a cut of 1.2 million barrels of oil in January 2017, a move supported by the non-OPEC members where they also agreed to cut about 558,000 barrels in December, 2016.

Although, Nigeria was spared from oil cut deal to its internal challenges in the oil sector. With crude price above $50 per barrel and oil benchmark of $48.5 per barrel and proposed daily output of 2.2 million barrels per day in the proposed 2017 budget, Nigeria is positioned to earn more from the deal.

Russia, the biggest oil exporter outside OPEC, alongside 10 other countries such as Mexico, Oman and Azerbaijan, agreed on the deal in Vienna.

Oil prices have slumped since the summer of 2014 from above $100 a barrel. The price rout, due to an oversupply thanks in part to the US shale oil revolution, was accentuated later that year when Saudi Arabia rejected any deal by OPEC to cut output and instead fought for market share. OPEC produced about 33.60 million barrels last year.

The United States Energy Agency said OPEC member countries produced about 40 per cent of the world’s crude oil. Equally important to global prices, OPEC’s oil exports represent about 60 per cent of the total petroleum traded internationally. Because of this market share, OPEC’s actions can, and do, influence international oil prices.

In particular, indications of changes in crude oil production from Saudi Arabia, OPEC’s largest producer, frequently affect oil prices.

The OPEC Secretary General Mohammed S. Barkindo recently stated that most analysts did not project that “the shale revolution that swept across North America, particularly the United States, would bring supplies to such very high levels that we saw. And of course OPEC member countries ramped up production in 2014 in order to stabilise prices. The joint action from both sides raised supply to very high levels and began to impact on stocks on inventories.

“So those inventories started rising gradually. In the industry we have a five-year average and once stocks are above those five-year averages, then prices begin to reduce.”

He said the focus  now is how to rebalance the market and “to do this, we have to withdraw supplies to the market in order to accelerate this stock growth, to restore this balance and it is only then that you will be able to achieve the equilibrium price,” Barkindo said.

Professor of Economics, Ode Ojowu, recently urged the ederal Government not to be deceived by the rise in oil price and abandon the diversification of the economy, saying the money from crude oil sales was not reliable and very unpredictable.