Nigeria hurts as OPEC and Non-OPEC countries refuse to cooperate on supply cut

Nigeria continues to hurt from the inability of Organisation of Petroleum Exporting Countries (OPEC) and non-OPEC countries cooperating to end the dip in oil prices by cutting back on supply to a global oil market on the verge of drowning in oil.

This is because it will continue to find it difficult to meet its basic economic obligations to her citizens as a result of dwindling revenue from crude oil sales.

Over 70 per cent of foreign exchange earnings are from crude oil.

Already the nations’ budget for the fiscal year 2016 which was based $38 benchmark per barrel of crude oil has ran into troubled waters as oil prices have  dipped below $30  per barrel.

The implication of this is that it would find it difficult to finance her projects for this fiscal year.

Nigeria has reviewed upwards the 2016 budget deficit to 3 trillion naira ($15 billion) from an initial 2.2 trillion naira ($11 billion) estimate.

Minister of Finance, Kemi Adeosun, in a statement this week, said that Nigeria had held exploratory talks with the World Bank and looked at options to borrow from African Development Bank and China Exim Bank.

Cooperation to cut supply by Organisation of Petroleum Exporting Countries (OPEC) and non-OPEC countries will stabilize oil prices in the view of analysts but they do not see the possibility of that happening anytime soon.

The Russian Energy Ministry reported on Monday, that the country’s energy Minster and Venezuela’s oil Minister discussed the possibility of holding joint consultations between OPEC and non-OPEC countries in the near future.

Speaking on the development, Russian Energy Minister Alexander Novak told Bloomberg, “We are ready to discuss the issue of cutting oil output volumes. We are ready to consider the possibility.”

Novak said that Venezuela had approached Russia about scheduling an emergency meeting between OPEC nations and non-OPEC oil exporters, and that Russia had agreed to join in any talks.

The revelation soon led to widespread speculations about the possibility of an agreement with OPEC and non-OPEC countries to cut back on supply, but Reuters reported that Russian Deputy Prime Minister Arkady Dvorkovich quickly denied that Russia would take state-lead action to reduce output.

“If prices are at a low level for an extended period of time, a correction investment will become inevitable and that will lead to a certain reduction in output, but that will not be a deliberate act by the state,” Dvorkovich told Reuters.

Analysts at Goldman Sachs believes it was “highly unlikely” OPEC would cooperate with Russia to cut output saying such a move would also be self-defeating as stronger prices would bring previously shelved production back to market, according to CNBC reports.

Tunji Andrews, business analysts for TTAC Africa does not see a world where such a cooperation will exists. “I doubt that it is possible,” he says.

“You only need Russia, the second highest producer of oil and Saudi Arabia, the biggest producer to cut production for oil prices to go up.”

Concerns about the political implications should also form part of the conversation in the view of Ibilola Amao, Managing Director of Lonadek. “Demand and supply would determine price recovery. Politics mixed with economics and energy security is too diverse for collaboration.”

Nigeria, a member of OPEC also has no plans to cut production; head of Marketing, Nigerian National Petroleum Corporation (NNPC) Mele Kolo Kyari told AFP in January, “Nigeria cannot stop the prices of crude from going down. The easiest thing to do is to control production but Nigeria can only do that through the OPEC framework and the last OPEC meeting did not agree to cut down production.”

Didier Houssin, president of French Institute for Petroleum and New Energies, in an interview with CNBC, said such a deal between Russia and OPEC would only benefit Russia and OPEC’s main competitor, the United States.

“There is no way U.S producers will respect any OPEC-Russia deal meanwhile, they will be the first to benefit from any price recovery by ramping up production.”

This is despite the warning by the International Energy Association that global oil markets could “drown in oversupply,” driving down prices even lower as China’s demands slows and Iran emerging from international sanctions with boost the world oil market.

ISAAC ANYAOGU