Nigeria Fails to Comply With Oil Production Cut in May
Nigeria failed to comply with oil production cut as required by the Oil cartel in an effort to stabilise global crude oil prices.
Based on agreement on oil production cut to reflate crude oil prices, Nigeria’s production quota was 1.41 million barrels per day (mbpd).
FSDH however said production in May was estimated at 1.48 mbpd suggesting a compliance rate of 95%
The Organisation of the Petroleum Exporting Countries (OPEC+) had agreed a 23% production cut to address the supply glut and re-balance the oil market.
Analysts had expressed worry about the country compliance with oil cartel production cut as Russia and Saudi Arabia came to term on arrangement.
FSDH group stated that a significant number of the large oil producers had a high compliance rate.
For example, Saudi, United Arab Emirates and Kuwait recorded a 100% compliance rate in the period.
Nigeria is to cut 417,000 barrels per day.
However, production in May was estimated at 1.48 mbpd suggesting a compliance rate of 95%, FSDH stated in a note.
Other Sub-Saharan Africa (SSA) countries – except Equatorial Guinea – also recorded lower compliance.
On average, FSDH stated that compliance rate was 96% in May suggesting a brighter outlook for crude oil price than previously anticipated.
With relatively lower oil prices as a result of COVID-19, oil exporting countries are expected to suffer revenue loss and exchange rate pressures in 2020.
In addition, OPEC cuts which were implemented to re-balance the market could make the situation challenging for oil exporters.
According to data from OPEC, Angola’s output declined by 4.4% to 1.34 million barrels per day (mbpd) in May, from 1.4 mbpd in March.
In Nigeria, output declined by 3.7% to 1.78 mbpd in April from 1.844 in March.
Gabon experienced a 4.46% production decline during the period.
In May, Nigeria implemented close to a 350,000 b/d production cut following the OPEC agreement to reduce output.
FSDH stated that this will have huge implications on government revenues, fiscal deficits and current account balance.
The firm however noted that budgets and their benchmarks are being reviewed in Nigeria, Angola and Gabon.
In March, supply glut in March and April led to a sharp fall of Brent Crude to US$9.1 per barrel in April.
As countries continue to relax lockdowns and restrictions, oil prices have picked up since late April.
Oil production cuts have also sustained price increase. Price rose to US$41 per barrel on June 8th.
However, year to date average global price of oil stands at US$40.3 per barrel.
Nigeria Fail to Comply With Oil Production Cut in May by Ogochi Ndubuisi