How N/Delta Militancy Threatens OPEC Oil Output Cut Optimism

Hamilton Nwosa
Writer
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With Nigeria among the three countries granted complete exemption from the Organization of the Petroleum Exporting Countries,OPEC, first output cut in eight years, there is cautious optimism as militancy activities in the Niger-Delta region threaten the excitement. The New Diplomat’s Business and Public Policy Editor, OLAMILEKAN OKEOWO writes.

A series of attacks by militants in the Niger-Delta region on Nigeria’s oil infrastructure has pushed the output of crude close to a 22-year low. The violence reduced production in Africa’s largest producer to roughly 1.69 million bpd in May, the lowest since at June 2007.The situation saw the country falling behind Angola as Africa’s number one oil-producing country.

Also, two years ago, global oil prices crashed after crude oil producers started pumping out far more crude than needed. That action plunged the price of crude from $100 per barrel to $40, upending the global economy in the process.

To check the slump, oil-producing countries, last Wednesday in Vienna, reached a deal to reduce their oil production by 1.2 million barrels per day in order to raise global prices. OPEC nations currently produce a total of 33.7 million barrels of oil per day. Under the deal, they’ll bring that down to 32.5 million barrels per day, with Saudi Arabia, Iraq, UAE, and Kuwait taking the largest cuts.

Nigeria and Libya were granted exemptions because they have experienced significant supply outages due to internal conflicts. Iran however agreed to freeze production near current levels rather than cut as it rebuilds its market share following the lifting of sanctions earlier this year.

The significance of the deal is that Nigeria was not affected in the cut, meaning Nigeria would still be allowed to produce at its (expected) maximum capacity of 2.2million bpd.

Rather than it be a cheering piece of news, the excitement in the country is dampened by the activities of militants in the Niger Delta, which have seen Nigeria’s oil output falling below 2 million barrels per day (mpbd) since the beginning of the year.

A deal to cut more production is expected to keep prices steadily above $60 a barrel by the first quarter of 2017 and accelerate the end of a glut that has been on for over two years after the development of shale drilling and oil-sands production in North America.

The country’s Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, said the development was good for the Nigerian economy.

“The concession was given as the country has been through production challenges recently due to the vandalism of oil and gas infrastructure which has negatively affected the country’s ability to produce oil optimally in the recent past.

“This deal will obviously enhance the prospects for the Oil and Gas industry with the impacts already being felt as oil prices surged more than 8% last Wednesday afternoon in London, hitting a high of 51.84 dollars a barrel.”

With this arrangement, analysts believe Nigeria would take advantage of the concession to recover.

The impacts are already being felt. Hours after OPEC announced its resolution on Wednesday, the price of Brent crude, Nigeria’s crude oil blend, jumped by about 8.26 percent, from $46.38 per barrel to about $51.06 as at Friday

Close followers of the Nigerian situation say the rise in crude oil prices on the heels of OPEC decision was a welcome development, particularly to a government in dire need of more revenue to pursue its ambitious infrastructure development programme to provide a solid foundation for economic growth.

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