- G-20 Intervenes, To Roll Out More Production Cuts Weekend
By Hamilton Nwosa(Head, The New Diplomat’s Business and Data tracking desk)
Oil prices have continued to plummet towards $20 per barrel against the backdrop of reported insufficient production cut agreement reached by Organization of Oil Producing Countries(OPEC) and Non-OPEC members. The deal which was struck yesterday has however not resolved tumbling Oil prices due to insufficient production cuts.
With this development, experts say all attention is now focused on G-20 which is meeting at this weekend, and may likely come up with further production cuts to douse rising tension in some OPEC countries including Nigeria which faces severe financial and economic challenges occasioned by drastic crash in Oil prices.
OPEC and Non-OPEC member Countries had reached a deal on Thursday, April 9, to a production cut of 10 million bpd. But industry analysts believe that this cut, the highest Oil production cuts in recent history, is still insufficient to balance the existing demand deficits.
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Reports tracked from industry sources say that the G-20 meeting which is scheduled to hold today is likely to come up with very drastic cuts at the weekend.
Recall that OPEC and Non-OPEC members had agreed to a joint cut of 10 mb/d. With this development, both Saudi Arabia and Russia, two previously warring countries resolved to cap production at 8.5 mb/d for May and June, after which cuts would naturally follow an easing trend in phases – down to 8 mb/d and then to 6 mb/d of cuts.
However, this deal has not aligned well with the global Oil market dynamics. “The supply and demand fundamentals are horrifying,” Nigeria’s born OPEC Secretary-General Mohammed Barkindo lamented.
But beyond this, the real issue also has to do with lack of co-operation from some Non-OPEC members. For example, Mexico temporarily held up the deal because she is unwilling to engage in further production cuts. Mexico’s President, Lopez Obrador revealed that he spoke with United States President Donald Trump, who has pledged to contribute to the cuts on Mexico’s behalf. “First they asked us for 400,000, then 350,000,” Obrador said yesterday.
He added: “Mexico was only able to cut by 100,000 barrels a day, and Trump “very generously expressed to me that they were going to help us with an additional 250,000 to what they are going to contribute. I thank him.”
Experts say the cuts are highly insufficient as “ inventories are set to rise in the coming months”. “The proposed 10 million bpd cut by OPEC+ for May and June will keep the world from physically testing the limits of storage capacity and save prices from falling into a deep abyss, but it will still not restore the desired market balance,” Rystad Energy explained in its anlaysis of the current energy situation .
In addition, some other experts said: “These cuts are not enough to prevent massive stockbuilds in May, let alone April,” says JBC Energy.
Nigeria’s Role in the Deal…
Nigeria participated in the crucial deliberations by the OPEC and Non-OPEC countries to seal the deal at a historic cut of 10m bpd. Nigeria’s Minister of State for Petroluem Resources and former Bayelsa State governor participated on behalf of Nigeria. Experts maintain that with this development, and based “on reference production of Nigeria of October 2018 of 1.829 Million Barrels per day of dry crude oil, Nigeria will now be producing 1.412 Million Barrels per day, 1.495 Million Barrels per day and 1.579 Million Barrels per day respectively for the corresponding periods in the agreement.” However, this does not include condensate production of between 360-460 KBOPD which was exempted from OPEC production cuts.
Industry analysts project that the deal when eventually concluded may lead to a rebound in crude oil prices “by at least $15 per barrel in the short term, thereby enhancing the prospect of exceeding Nigeria’s adjusted budget estimate that is currently rebased at $30 per barrel and crude oil production of 1.7 Million Barrels per day” .
Nigeria’s Minister of State for Petroleum Resources and former Governor of Bayelsa State, Chief Sylva was quoted as reacting to this development thus : “It is therefore pleasing to note that despite the production curtailments that this historic agreement will entail, all planned industry development projects will progress as they will be delivered after the termination of the 9th OPEC/Non-OPEC Ministerial Meeting Agreement on adjustments in April 2020”.
Recall that Chief Sylva, who is also the APC leader in Bayelsa State and a key player in the APC led government had earlier pledged Nigeria’s readiness and commitment to deliberations on output cut as proposed by OPEC. He had explained: “As Nigeria’s Minister of State for Petroleum Resources, I will continue to monitor the impact of COVID-19 on our, and the global, economy. In our consultations with global industry stakeholders in the lead up to the OPEC+ meeting scheduled for Thursday, April 09, 2020, the Nigerian Government will take a position that is in the best interest of our short term and long-term economic forecast.”
Recall also that The New Diplomat had recently projected that with escalating glut in oil supplies and stretched storage capabilities, exacerbated by Saudi Arabia increase in oil production even in the face of dwindling global demand, global energy experts have come up with grim outlook that the world may be heading towards Oil price crash as low as $17 per barrel in the coming weeks if urgent talks are not held.
For Nigeria, Africa’s most populous nation, whose externally generated revenue is about 97% dependent on earnings from crude oil, the grim outlook was further compounded by the recent downgrading of the country’s credit rating from stable to negative by Standard & Poor (S&P). With that development, experts say that all eyes are now on Nigeria’s Niger Delta, specifically the Delta creeks where influential de facto leader of the Niger Delta agitations, High Chief Government Oweizide Ekpemupolo aka Tompolo holds sway.
It would also be recalled that Nigeria’s Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed had disclosed that Nigeria may slide into recession if the Covid-19 continues unabated for the next six months. For many stakeholders in the volatile Oil rich Delta, it is now time to maintain peace with all key stakeholders and the political leadership of the South-South zone driving the process in a sincere, transparent, all-inclusive and accountable manner. According to stakeholders ‘’this would help guarantee stable oil production, ensure peace in the volatile, and help sustain existing production dynamics in order to preserve what is left of our already challenging national economy.”
