The spirit of cooperation and compromise prevailed in what some analysts expected to be one of “the worst OPEC meetings”, as major oil producing countries agreed to pump more crude to help reduce prices and prevent a supply shortage, in a significant reversal of Organisation of Petroleum Exporting Countries(OPEC) strategy of curbing output over the past 18 months.
Ademola Henry team leader at the Facility for Oil Sector Transformation (FOSTER) said the decision to increase output is more of a political decision which countries with higher production will benefit however for Nigeria it’s still some of the same.
“We are struggling to get a production level of 1.7 million or 1.8 million, so there is really no benefit for Nigeria except we fix our Petroleum Industry Bill (PIB) and Fiscal issues which will address some of the problem we are facing,” Henry told BusinessDay.
After a fraught meeting in Vienna in which Iran was initially at odds with a Saudi-led drive to boost production, ministers settled on a target they said would increase output by around 1m barrels per day (bpd).
Emmanuel Afimia energy analyst at Afimia consulting services said the decision of OPEC to increase output is a bit ambitious although it shows that US has a stronghold on Saudi Arabia.
“I think the US is using Saudi Arabia to create a relationship with Russia,” Afimia told BusinessDay.
Afimia also expect the oil price to fall as a result of increase in supply although some countries inability to increase output will make the fall in price moderate.
While oil prices have pulled back from the four-year high above $80 a barrel hit last month, they rose after the deal on Friday by over 2 percent after OPEC made the announcement which is the highest increase under 24 hours.
Ayodele Oni an energy partner at Bloomfield Law field said since OPEC is determined to control output prices there will always be a sharp reaction in prices which is what is currently being seen.
OPEC faced pressure to increase output from President Donald Trump and big consumers like India after the cost of crude soared to multi-year highs, boosted by strong demand, dwindling output from Venezuela and renewed U.S. sanctions on Iran. “Hope OPEC will increase output substantially. Need to keep prices down,” Donald Trump tweeted immediately after the meeting on Friday.
Top OPEC producer Saudi Arabia had faced the challenge of convincing a handful of reluctant producers including Iran, Iraq and Venezuela to support an output hike.
Initially, it appeared as though ministers were very far apart. Iran said it would not support any increase in oil production whereas Saudi Arabia was reportedly looking for an increase of as much as 1 million barrels per day. After several bilateral meetings between Iran and other producers, the oil ministers reached a compromise that will effectively increase the amount of oil on the market.
“The divergent views in OPEC are not a new thing, however they will always have a gentleman agreement to resolve it some point,” Oni of Bloomfield Law field told BusinessDay by Phone.
The kingdom’s energy minister, Khalid al Falih, said as he left Friday’s meeting in Vienna that the roughly 1m-barrel-a-day agreement would allow countries with spare production capacity to boost output.
Although the 1 million Barrel Per day figure was not included in the final statement from the meeting, suggesting a possible concession to Iran, however various ministers, including from Iraq and Nigeria, confirmed it.
Nigeria’s oil minister Ibe Kachikwu said the agreement would see OPEC members raise output by at least 700,000 bpd.
“OPEC Member Countries have exceeded the required level of conformity that had reached 152 percent in May 2018,” the group said in its official statement. “Accordingly, the Conference hereby decided that countries will strive to adhere to the overall conformity level of OPEC-12, down to 100 percent” beginning on July 1.”
With renewed US sanctions on Iran’s energy exports taking effect later this year and Venezuela’s production predicted to keep falling due to its political crisis, there remain concerns the supply boost will not be enough.
The so-called petro-alliance, formalised at the end of 2016 cut supplies by 1.8 million barrels a day, and to the surprise of many, brought 24 countries together to rebalance the market.
The International Energy Agency (IEA) in its latest report said that total surplus supplies are running near the all-important five-year moving average.
Crude prices surged to $80 a barrel the third week of May, but that is when it started to get more complicated.
“It is not like we are doing things because this country or that country told us to do it, the group is independent,” said Suhail Al Mazrouei, the UAE Ministry of Energy and the current president of OPEC during an interview in Abu Dhabi.
Three of the world’s biggest importers US, India and China have lobbied for policy changes. India’s Minister of Petroleum recently said before a large audience in Abu Dhabi that $80 a barrel was “pinching” the fast-growing economy.
“The history of the organisation is not to make it political. That is a view that I have and many others share that view,” said the OPEC President, making a reference to organisation’s de facto leader and largest producer Saudi Arabia.
While OPEC is expected to review the impact of the increase in September, Mazrouei said that the group needs to focus on its mandate, which is balancing market supplies with demand. OPEC seems unmoved by the rapid increase in US output by shale producers to a record 10.9 million barrels a day.
“Nigeria needs to stop being a mono economy which will make the economy less dependent on the outcome of OPEC meetings,” Oni said while reacting to the impact of the OPEC meeting on Nigeria.
Brent crude, Nigeria’s benchmark grade traded at $75.48 per barrel Friday, according to Bloomberg data.
Production has also been relatively stable since militants ceased blowing up pipelines, touching a two-year high of 1.8 million barrels in May, according to OPEC data.
