OPEC to extend oil freeze beyond June

THERE are strong indications that the Organisation of Petroleum Exporting Countries (OPEC) is getting set to extend oil cut beyond the initial agreed date of June 2017.

The group may also increase the reduction in output if inventories fail to drop to a specified level, sources from the group told Reuters.

The agreement, which also involves 11 non-OPEC producers, including Russia, Mexico, Kazakhstan, Azerbaijan, and several smaller producers, envisaged taking off around 1.8 million barrels from the global daily supply. This means, according to the sources, that global stockpile should shrink with 300 million barrels in the six-month period, to reach the five-year average. This, however, requires a compliance rate of 100 per cent from all participants.

Reliable inventory data from all the countries taking part in the agreement is not coming soon and will likely still not be available when OPEC meets in May to discuss progress. Non-OPEC producers may also attend the meeting.

Meanwhile, loading data from Angola, the current Africa’s largest oil exporter and a member of OPEC, has revealed that the country plans to export 1.691 million bpd in April, up from 1.54 million bps to be exported in March. Production increased to 1.651 million bpd in January, well above Nigeria’s 1.576-1.604 million bpd.

Despite this stated readiness to cut as much as necessary for as long as necessary, the odds are against any noticeable pickup in prices, at least until conclusive supply data becomes available.

It’s true that OPEC is doing a surprisingly good job, at least initially in complying with its promised output cuts, but pressured by budget deficits caused by the oil price crash, producers will be tempted to pump and export more at those higher prices. For many observers, there is only one question: when OPEC members or non-OPEC producers for that matter will start cheating and who will start first.

Nigeria’s Acting President, Professor Yemi Osinbajo, has been visiting the Niger Delta region soliciting for support from the restless youths that have been attacking the crude oil installations in that region which remains the mainstay of the Nigerian economy.

Although, Nigeria is exempted from the oil freeze, but it is yet to reach its peak output production which was an average of 2.2 million bpd. If the deal could be pushed further and the aim of influencing upward movement of crude price is achieved, Nigeria will be one of the major beneficiaries of the deal due to its present economic recession ravaging the country.