The world’s biggest oil-producing group has agreed to increase oil production in the coming months, a decision that comes with huge implications for Africa’s biggest oil producer.
The group, the Organisation of Oil Exporting Countries (OPEC) and its allies like Russia, agreed to add another 400,000 barrels per day (bpd) on a monthly basis beginning in August 2021 until it phases out all the 5.8 million bpd that the group is currently keeping off the market, in light of improving global oil demand.
With gradual stability, notwithstanding the uncertainty in the market, OPEC’s decision to extend their overall pact until the end of 2022 from an earlier planned date of April 2022 is expected to have a huge impact on Nigeria’s oil production.
Higher oil production
The decision increases Nigeria’s oil output from about 1.4mbpd to 1.8mbpd by April 2022. The incremental supply into the market could enable Nigeria to increase activities in the oil sector thereby meeting the estimated benchmark in the current budget.
Nigeria is usually faced with a dilemma each time oil price increases or decreases. While the increase in the price stabilizes revenue for the government, subsidy on petroleum products reduces when the price of crude reduces given that the country has no functional refinery.
No baseline review for Nigeria
OPEC turned down Nigeria’s request for a review of its baseline despite increasing other countries’ baselines in return for supporting an extension of the group’s cooperation agreement.
Nigeria has produced in the past years ranging between 1.1 million and 1.5 million barrels of oil. The country, which has a capacity of 2.5mbpd, has been subject to a series of quotas and compliance enforcements.
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Late last year, Nigeria asked for its baseline figure to be reviewed based on disagreements over the classification of output from the country’s Agbami field.
Despite turning down Nigeria’s request, OPEC increased UAE, Saudi Arabia, Russia, Iraq, and Kuwait’s production baselines, which will become effective from May 1, 2022.
The United Arab Emirates (UAE) will see its baseline lifted to 3.5mbpd, from 3.1mbpd now; Kuwait’s reference level will be raised to 2.9mbpd from 2.8mbpd, and while Iraq will see its baseline increased to 4.8mbpd from 4.6mbpd.
Saudi Arabia and Russia will each have a reference level of 11.5mbpd from May 2022, up from 11mbpd.
Those five countries combined will have 1.63mbpd higher reference levels from May next year, including 1mbpd for the two leaders of the OPEC+ pact, Saudi Arabia and Russia.
Capacity questions
Still, the quota wrangles of the last two weeks have exposed a growing rift between those OPEC+ members that can comfortably increase output to baseline levels and beyond, and those that cannot.
For a variety of reasons, some countries have experienced significant production capacity declines over the last couple of years.
“Angola, Malaysia and Nigeria’s June compliance rates of 180 percent, 167 percent and 156 percent, respectively, reflect upstream struggles rather than voluntary over-compliance,” Amena Bakr, chief OPEC correspondent at Energy Intelligence, notes.
She says this is likely to become an increasingly significant issue in producer output debates, as those with spare capacity chafe at shouldering what they see as a disproportionate burden.
Nigeria’s sweet crude bullish at $75
The decision by OPEC to pump 400,000bpd of crude oil into the market on a monthly basis from August has pushed oil price to a low of $69 per barrel, but Nigeria’s sweet crude, Bonny Light, remains bullish at $75.23.
Although Nigeria’s Bonny Light maintained its competitive edge, standing at about $75.23, Brent suffered more than 5.19 percent loss, selling at $69.77 while WTI crude stood at $67 to a barrel.
