Nigeria’s Oil Supply Quota Caps at 1.41 Million Barrels Per Day
- As per efforts to reflate, stabilise global prices of oil, Nigeria is expected to slash daily crude supply to 1.41 million barrels per day (MMbpd) base on a quota from the Organisation for Petroleum Exporting Countries.
The cartel recently cut its 2020 forecast for crude demand by 6.85 MMbpd to 92.82 MMbpd as against initial forecast of 99.67 MMbpd.
OPEC+ took this step as it expects the reduced economic activity induced by the virus to weigh significantly on oil demand.
However, industry’s experts said the Nigeria has history of non-compliance with the OPEC+ ration.
Fitch, an international rating agency, had stated in a report that oil supply cut will hurt the economy.
Meanwhile, more than 90% of the nation’s foreign receipts are from crude exports as non-oil revenues capacity remains low despite fiscal drives.
In its initial 2020 spending plan, government had expected to push as much as 2.2 million barrels of oil to the market per day.
The recent supply glut has reduce government foreign receipt from oil, pushing budget deficits to about 4% of the gross domestic products or N5.4 trillion.
Meristem Securities explained in a research note that while Nigeria is expected to cut production to 1.41 MMbpd.
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While this is part of the joint effort to stabilize price in the global market, the country alongside other nations like Iraq are known to go beyond agreed limits.
The investment securities firm added that on the domestic scene, Nigeria was forced to slash its official selling prices to as low as $14.67 per barrel (pb) in April, at the peak of the price war.
Notwithstanding, the country still faced challenges clearing its inventory of unsold cargoes as other oil majors sold at even much deeper discounts, the firm remarked.
Nigeria’s Oil Supply Quota Caps at 1.41 Million Barrels Per Day
Meristem said this pre-empted a revision of the 2020 budget oil benchmark from $57pb eventually to $25pb, while oil production benchmark was reduced to 1.94 MMbpd.
A positive development however was the downward revision of PMS prices from N145 per liter to N123.50 per liter in April by the PPRA.
This move excite analysts, as they said the country is gradually transitions towards a full deregulation of the downstream sector.
Again, a further decline reported in oil price in April resulted to another cut in pump to N108 per litre.
Analysts believe that this would ultimately eliminate under-recovery expenses and improve cost prudence.
MarketForces gathered that base on landing cost, pump price of PMS, others will rise when global oil prices increase after lockdown eases.
With global oil prices expected to remain downbeat for much of 2020, the outlook for FX revenue from crude oil remains bearish, Meristem explained.
The firm remarked that this poses a significant threat to exchange rate stability as foreign capital inflows have been virtually non-existent.
The global oil market in 2020 so far has witnessed turbulent times due to the demand problem induced by the COVID-19 pandemic.
Analysts review explained that Air travel was shut down, causing jet fuel sales to take a big hit, while lockdowns were imposed across the world leading to reduced use of automobiles and public transportation.
In China, the impact of the lockdown on transportation and industrial fuel consumption resulted in a fall in the country’s oil demand to 10.27 MMbpd in Q1:2020 coming from 13.52 MMbpd in the fourth quarter of 2019.
Analysts remarked that the price war between oil majors Russia and Saudi Arabia, precipitated an oversupply situation in the market.
This caused a build-up of inventories and a shortage of storage capacity.
As a result, Brent Crude and WTI fell to unprecedented lows of $19.33 and -$37.63 respectively in late April.
Then, OPEC+ and other oil producing nations including the US, returned to the negotiation table in April and agreed to a record output slash of 9.7 MMbpd for May and June.
This is a similar view held by analysts at Meristem Securities and other industry’s observers that spoke with MarketForces.
“The possibility of countries not adhering to their agreed production cuts is another factor to consider”, Meristem explained.
The agreed cuts will then narrow to 7.7 MMbpd from July to December 2020, and 5.8 MMbpd from January 2021 through April 2022.
Meristem recalled that this, along with the gradual easing of lockdowns around the world, spurred a positive rally in crude prices with Brent and WTI gaining 42.78% and 80.04% in May.
But Research note obtain from LSintelligence Associates shows that despite this renewed optimism, uncertainties linger as the persistence of the pandemic poses a threat to global economic recovery.
