The Organisation of Petroleum Exporting Countries, OPEC, on Thursday agreed to cap the combined output of Nigeria and Libya at 2017 levels not above 2.8 million bpd.
Reuters reports that a joint OPEC and non-OPEC communique issued after its meeting in Vienna said the next meeting in June 2018 would present an opportunity to adjust the agreement based on market conditions.
Both Nigeria and Libya have been exempted from cuts due to unrest and lower-than-normal production.
The Minister of State for Petroleum Resources, Ibe Kachikwu, who led the Nigerian delegation to the conference said Nigeria was allowed to continue to produce to meet about 1.8 million barrels per day, bpd cap, against Libya’s one million barrels per day.
Although the production ceiling is below the average 2.3 million barrels production benchmark produced in the 2018 budget, Mr. Kachikwu said the country would have to put in more efforts to produce condensate and others not captured along pure crude by OPEC calculations.
PREMIUM TIMES had Wednesday reported the possible cap on both countries’ production output, a development that could affect Nigeria’s 2018 oil revenue projection and funding of budgetary allocations.
On Thursday, OPEC and non-OPEC producers led by Russia agreed to extend oil output cuts until the end of 2018 as they try to finish clearing a global glut of crude while signaling a possible early exit from the deal if the market overheats.
Russia, according to Reuters, has been pushing for a clear message on how to exit the cuts so the market doesn’t flip into a deficit too soon, as it needs much lower oil prices to balance its budget than OPEC’s leader Saudi Arabia, which is preparing a stock market listing for national energy champion Aramco next year and would hence benefit from pricier crude.
The oil producers’ current deal, under which they are cutting supply by about 1.8 million barrels per day (bpd) in an effort to boost oil prices, expires in March 2018.
Saudi Energy Minister Khalid al-Falih said it was premature to talk about exiting the cuts at least for a couple of quarters as the world was entering a season of low winter demand, stressing that OPEC would examine progress at its next regular meeting in June.
The 14-member OPEC and Russia together produce over 40 per cent of global oil. Moscow’s first real cooperation with OPEC, put together with the help of President Vladimir Putin, has been crucial in roughly halving an excess of global oil stocks since January.
Due to the rising price of oil, put at above $60, Russia has expressed concerns that an extension for the whole of 2018 could prompt a spike in crude production in the United States which isn’t part of the agreement.
Reuters reports that international benchmark Brent crude LCOc1 rose around 0.5 percent on Thursday to trade above $63 per barrel while U.S. government data showed that U.S. oil production rose 3 per cent in September to 9.48 million bpd.
OPEC, however, “won’t be quick on the trigger” to react to short-term U.S. output spikes, Mr, al-Falih said Thursday.
The global oil glut has in recent years been triggered by U.S. shale oil producers; but they have been adjusting their message over the past year, switching away from combative language with regard to OPEC actions.
Speaking with Reuters Thursday, Gary Ross, a veteran OPEC watcher and founder of Pira consultancy, said the market could surprise on the upside with Brent rising to $70 if there were a major supply disruption.
The OPEC production cuts have been in place since late 2016 and helped halve an excess of global oil stocks.
Nigeria relies heavily on oil revenue to fund its budgetary allocations.
The federal government says it wants to ensure adequate implementation of the 2018 budget when passed unlike the 2017 budget, which has recorded implementation below 50 per cent. The government has, however, said the poor implementation of the 2017 budget was due to acute revenue constraints.
In 2016, the nation was hit hard by the sharp drop in global oil prices, a development that pushed it into its first recession in 25 years. It, however, recovered and slipped out of recession in early September, after contracting for five consecutive quarters.
Africa’s largest oil producer has so far been excluded from OPEC supply cuts, due to falling production amid unrest in the Niger Delta region. But following negotiations with some leaders of the region in recent months, the nation has enjoyed relative peace and impressive oil production in the region.
But the new development, however, the federal government may be forced to adjust its output estimate to the 1.8 million barrels per day; a decision that would significantly affect projected revenue and other figures contained in the budget.