With just a day to the 173th meeting of Oil Producing and Exporting Countries (OPEC) and non-OPEC producers led by Russia in Vienna, the gathering is likely to have a different tone than the previous meetings, because global oil demand has strengthened, inventories have tightened, prices are on the rise, and trading technicals appear bullish.
One of the biggest questions facing Thursday’s meeting will be how OPEC can curtail U.S. shale producers.
Energy Information Administration (EIA) estimates U.S. oil production this year will increase 300,000 barrels per day (bpd) to a total of 9.3 million bpd.
For 2018, it projects another 700,000 bpd of new supply, raising U.S. daily output to around 10 million bpd, big enough to cancel much of the sacrifices made by OPEC and Russia and leaving the surplus more or less intact
Although OPECs 14 members still pump 40 percent of the world’s oil, their share has dwindled from the peak of the early 1980s.
Nevertheless the production cuts by OPEC and Russia has helped to drain excess inventories in developed nations this year by 183 million barrels, or more than half of the glut, which now stands at about 140 million barrels, according to OPEC data. That has revived London-traded crude futures, which sank below $45 a barrel this summer, to a two-year high of $64.65.
In response to higher prices U.S oil producers are increasing their drilling activity.
Energy consultancy Westwood Global Energy Group said, “U.S. output would climb even faster than implied by the rising rig count, which has jumped from 316 rigs in mid-2016 to 738 last week, as producers become more productive per well.”
In mid-November, United Arab Emirates (UAE) Minister for Energy Suhail al-Mazroui said he expects all OPEC and allied non-OPEC countries to extend global supply cuts beyond March next year.
Due to production decline as a result of crises in the Niger Delta region, Nigeria was first granted production cuts at the November 2016 Ministerial Conference which was later extended in May, pending when the country stabilises its crude oil production.
Recent data from OPEC shows Nigeria oil productions in August hit 1.804 million barrel per day (bpd) and a further increase in September at 1,855 million bpd.
Earlier in September, Nigeria’s oil minister, Emmanuel Kachikwu, stated that “Nigeria cannot join the production cuts till at least after March 2018, because it needs additional recovery time from the outages caused by militants.”
This could present a problem at the next OPEC meeting, because non-OPEC participants have long seen the exemptions given to OPEC members Libya and Nigeria as unfair.
With current data from central bank of Nigeria (CBN) showing Nigeria’s exchange rate at N305.8 per dollar, inflation rate at 15.91 and oil price currently at $64.23, Nigeria looks likely to see more economic improvement as oil revenue improves.
“It’s good news for Nigeria, because the 2018 budget production assumption is at 2.3 million per barrel, so there is every likelihood that the government will likely meet its estimated revenue for oil unless OPEC asks for a cut down for the country which seems unlikely,” said Dolapo Oni, Head of Energy Research at Ecobank.
On the future expectation of global oil price, Oni responded “there will be a correction late next year, because as supply increases aftermarket backwardation, there will be increase in supply and prices will go down. In the meantime as we enter the winter season there will be an increase in demand for oil especially in February when oil refineries will be shutting down for maintenance. “
Saudi Arabia has been reducing its export and production in order to curtail the oil glut and seems now in an uncomfortable position where they may have to resort to further production curbs to balance the market.
Geopolitical tension among OPEC countries have always affected previous meetings, so as expected, the current Saudi Arabia and Iran confrontations is expected to come into play and could however affect the potential decision on the longer-duration extension of production cut.
Iran currently still enjoys production cut as a result its economy still recovering from U.S imposed sanctions which includes restrictions on its oil production and export.
Unlike oil dependent Saudi Arabia, Russia is less reliant on higher oil prices and has typically been keen not to concede too much market share to its rivals. However with new oil fields set to come online next year, the world’s largest energy exporter is still hesitant on the length of OPEC oil cuts extension.
OLADIPO OLADEHINDE
