By Adedapo Adesanya
Nigeria and other oil producers around the world will begin to cut as much as 10 percent of the present crude oil supply from tomorrow, Friday, May 1.
Nigeria is a member of the Organization of the Petroleum Exporting Countries (OPEC), a cartel of oil producing nations led by Saudi Arabia, who along with allies led by Russia will trim production by roughly 9.7 million barrels per day.
The decision is being taken primarily to help ramp up oil prices, which have dropped more than 70 percent this year alone due to coronavirus pandemic.
As a result, oil revenue of economies have seriously been affected and has threatened many oil companies.
OPEC and its allies met earlier this month and decided to cut production, putting an end to an oil price war between Saudi Arabia and Russia, which gave liberties to countries to push discounted oil to a market crumbling under the weight of oversupply.
Business Post analysis showed that with the new OPEC+ deal taking effect tomorrow, Nigeria reduce production by 400,000 barrels per day. This means the Africa’s largest oil producer will now produce 1.412 million barrels per day from May-June 2020. From July to December 2020, it will not be allowed to supply more than 1.495 million barrels per day and 1.579 million barrels per day from January 2021 to April 2022.
This is in addition to condensate production of 360,000 barrels per day to 460,000 barrels per day from which Nigeria is exempt from the cut.
According to OPEC’s secondary sources in its official production figures for March 2020, Nigeria pumped 1.853 million bpd of crude oil in March, up by 65,000 barrels per day compared with February 2020.
Several other countries such as the United States, Canada, and Brazil also announced that they will join the output ceiling although there was no clear cut figure that will be cut.
Nigeria’s crude Bonny Light crude grade has been recently offered at a discount of $5 a barrel to dated Brent, while it would have fetched a premium of $3 a barrel over Brent if market conditions were normal.
Also, there are April and May cargoes of Nigerian oil that have not been sold yet, and the country is yet to reach an agreement with key oil players in the country to decide the next course of action for June.
The emergence of Nigeria’s June loading programmes was severely delayed due to wrangling between producers and the Nigerian National Petroleum Corporation (NNPC) on how the new deal should be implemented.
And with limited spaces to store its oil, the best course would be to reduce what the country produces. But the Royal Dutch Shell, which has the largest production in Nigeria, is yet to disclose its plans.
Exxon, which operates one of Nigeria’s key grades, Qua Iboe, slashed exports in June to 95,000 barrels per day compared with an original May programme of 215,000 barrels per day.
Although without production cut, oil prices globally would still fall further. This deal will help to stifle the hard hitting effect and slow down the process and would later work out when demand that has been slashed due to the lockdown eventually lifts the market back to positive region.
Dipo Olowookere