Nigeria may demand for increased crude production from OPEC+ in March
Nigeria may demand for increased daily crude oil production from OPEC+ in March when the restriction placed on the country’s production quota is expected to be lifted.
OPEC+ had placed the restriction on Nigeria and Iraq for failing to comply early enough with the oil cartel’s production cuts occasioned by the outbreak of the COVID-19 pandemic. Both countries had their compliance extended to March, 2021, as against December 2020, when other members of OPEC+ were allowed to slightly increase their supply to the global market in January 2021.
In other words, while other members of the organisation were allowed to increase their productions since January this year, the two countries have to wait till March to do same.
Industry analysts are of the view that Africa’s largest crude producer may ask to be allowed to supply more to the market when the oil cartel meets on March 4. If Nigeria secures OPEC+’S nod to do so, it will boost its earnings and capacity to finance the 2021 budget which benchmark was $40 per barrel.
Nigeria currently produces 1.47 million barrels of crude per day, but Timipere Slyva, minister of State for Petroleum, says the country can produce above 2.5 million barrels.
“We have a very robust reserve; our crude oil reserve stands about 37.5 billion barrels. Last year when everybody was required to produce to maxim, we are also able to achieve 2.5 million in one day, but had to cut down because of OPEC+ cut of production quota. If today they ask us to produce to capacity, we should be able to produce above 2.5 million barrels per day.’
Sylva said Nigeria’s reserve can support four million barrels per day but unfortunately we are not there yet, but there is good headwind to improve
The COVID-19 pandemic has ravaged energy markets and decimated demand. Of the three fossil fuels, coal, natural gas, and oil, demand for the latter was affected most due to its importance for the transportation sector. With grounded airplanes, reduced shipping, and parked cars across the world, the consumption of petroleum products decreased significantly in 2020. As demand recovers and oil prices rise at the beginning of this year, markets are increasingly concerned that the OPEC+ agreement that has provided moderate stability, could be about to fall apart.
Last year, two of the three largest oil producers in the world, OPEC’S de-facto leader Saudi Arabia and Russia, agreed on production cuts to stabilise the market and to prop up prices. This led to a record 9.7 million barrels per day (mbpd) withdrawn from the market. Although a massive quantity under normal circumstances, the cuts were barely enough to stabilise prices.
During the last OPEC+ gathering, negotiations were particularly difficult due to the diverging views of Russia and Saudi Arabia. For Riyadh, Moscow’s continued participation is crucial. Despite the challenges, the parties agreed to extend the production cuts. Russian producers were allowed to increase production in February and March by 65,000 bpd, while the Saudis voluntarily decreased production by one million bpd.
The parties are scheduled to meet again on March 4 to discuss production levels for April. The unprecedented price rally of the oil markets will undoubtedly create tension between the negotiators.