- OPEC mulls extending production curbs by over three months
Nigeria will resist any attempts to curb its oil production when it meets with the Organisation of Petroleum Exporting Countries (OPEC) and Russia later this month, posing a threat to the cartel’s efforts to cut global supplies and boost crude prices towards $60 a barrel.
The Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, told the Financial Times in an interview that Nigeria’s oil and gas sector was still suffering from years of violent disruptions and needed more “recovery time” before joining a supply deal agreed last year between some of the world’s biggest oil producers.
Kachikwu, who represents Nigeria at OPEC meetings, said he would not consider reducing production until at least March next year, as it had not yet been proven that the country’s rebound in production would last.
“We have a nine-month exemption period within which to come back to the table,” Kachikwu said, referring to the decision to extend the near 2 million barrel a day (mpbd) supply cut deal from June.
“You need that timeframe to see if any recovery is sustainable,” he pointed out.
His stance puts Nigeria on a potential collision course with other OPEC members as the country’s output has rebounded strongly in the past 12 months, blunting the effectiveness of a deal between 24 countries to shave off almost 2 per cent of global oil output.
Africa’s largest oil producer has seen its output jump from a low of 1.4mbpd a year ago to almost 1.9mbpd in August, according to consultants and analysts OPEC relies on to track members’ oil production. Nigeria’s own output numbers are lower.
Both Nigeria and its conflict-ridden OPEC peer Libya were made exempt from the initial agreement reached late in 2016, as both countries’ oil sectors recovered after years of unrest that crippled the lifeblood of their economies.
But higher than anticipated production from both countries has dulled the impact of the supply deal, as has resilient US shale production and poor adherence with the pact from participating members of OPEC such as Iraq and the UAE.
A ministerial committee monitoring compliance with the deal, made up of officials from OPEC and those outside the cartel such as Russia, has said Nigeria would cap or curb its output once production stabilised at 1.8mbpd.
But a timeline or framework to measure steady production and the country’s entry into any deal has never been specified.
Pressure on Nigeria to reduce its crude production is expected to increase when it attends an informal meeting in Vienna later this month with delegations from Saudi Arabia and Russia, which have been leading the cuts effort.
Kachikwu said while militant attacks in the resource-rich Niger Delta region had subsided, and output had rebounded from last year’s low, more time was necessary.
“They should let us exhaust those nine months and see whether we have been able to establish stability,” he said.
Alexander Novak, Russia’s Energy Minister, told the FT in July that volatile output from Nigeria and Libya was causing “uncertainty” among market participants.
Industry analysts said both countries’ production was keeping a ceiling on prices.
Global producers took co-ordinated action as the crude price downturn that had put an acute strain on their economies entered its third year.
Saudi Arabia has discussed a further extension in recent days with several oil producers and two OPEC delegates said Nigeria’s involvement is in focus.
For Kachikwu, limits to price rises had mostly to do with robust US shale oil output. “(OPEC’s) big expectation that we would be able to hit $60 a barrel is not looking likely,” said Kachikwu.
“$60 is looking very, very tough right now if you look at the sort of numbers coming out from US shale,” he added.
Kachikwu said Brent crude price would likely stay close to $55 a barrel for the next year, with any further rises depending on a “well managed” OPEC output policy that ensured producers did not “pump unnecessarily”.
He added that should US shale output continue to expand, prolonged output cuts would be “difficult” to keep up.
“The earlier all of us get used to the fact (shale) is going to be there for a long time, the better,” said Kachikwu.
Meanwhile, as OPEC member countries prepare to meet this month, the cartel and its allies are discussing a further extension of the oil production cuts ahead of a ministerial meeting scheduled for late November in Vienna.
Bloomberg reported that the duration will depend on multiple variables, including the level of compliance with agreed cuts by OPEC and its allies, the pace of the oil-output recovery in Libya and Nigeria, U.S. shale supply and the strength of global demand.
This is coming as the cartel Tuesday forecast higher demand for its oil in 2018 and pointed to signs of a tighter global market, indicating its production-cutting deal with non-member countries was helping to tackle a supply glut that has weighed on prices.
In a monthly Oil Market Report, OPEC said the world would need 32.83 million barrels per day (bpd) of OPEC crude next year, up 410,000 bpd from its previous forecast.
OPEC’s own estimates show that even with demand for its oil likely to increase next year, the group won’t be able to reverse curbs on output if it wants to balance the market.
The organisation boosted its forecast for the amount of crude it needs to supply by 400,000 barrels a day to 32.8 million barrels in 2018, which remains in line with production last month.
The group’s total output dropped 79,100 barrels a day to 32.755 million a day in August amid a retreat in Libyan production, according to the report.
The cartel, which pumps four of every 10 oil barrels the world consumes, said that demand for its crude in the first and second quarters of 2018 will be lower than its current production, suggesting oil inventories will increase once again in the first half of next year.
OPEC pegged demand for its crude at 31.8 million barrels a day in the first quarter, and at 32.4 million in the second quarter. That compares with current output of nearly 32.8 million barrels.
Saudi Arabian Energy Minister Khalid Al-Falih last weekend discussed the potential extension of the deal with his counterparts from Venezuela, Kazakhstan and the United Arab Emirates.
Al-Falih said longer-lasting curbs “would be considered in due course as market fundamentals may dictate”.
Oil edged higher for a second day as OPEC was said to be considering keeping production caps in place beyond their March expiration and U.S. crude refiners accelerated their post-hurricane recovery.