• Thursday, March 28, 2024
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OPEC considers highest ‘historic’ production cut since COVID 19 pandemic

Rising oil output from Nigeria raised OPEC’s June production

Nigeria and some of the world’s most powerful oil producers are reportedly considering their largest output cut since the start of the coronavirus pandemic this week, a historic move that energy analysts say could push oil prices back toward triple digits.

The Organisation of the Petroleum Exporting Countries (OPEC) and non-OPEC producers, a group often referred to as OPEC+, will meet in Vienna, Austria, on Wednesday to decide on the next phase of production policy.

The oil cartel and its allies are considering an output cut of more than a million barrels per day, according to OPEC+ sources who spoke to Reuters.

“The OPEC ministers are not going to come to Austria for the first time in two years to do nothing; so there’s going to be a cut of some historic kind,” Dan Pickering, CIO of Pickering Energy Partners, said, referring to the group’s first in-person meeting since 2020.

However, Pickering said he expects the actual number of barrels coming off the market will likely be around 500,000, which is “going to be enough to support the market in the near term.”

“The increase would be divided proportionally between members in the usual way, delegates said. Countries that have been unable to raise production, such as Angola, Nigeria and most recently Russia, would still be allocated a higher quota,” Pickering added.

On Monday, the international benchmark Brent crude futures popped 4percent to $88.54 per barrel, while U.S. West Texas Intermediate futures climbed 4.2percent to trade at $82.83 per barrel.

Stephen Brennock, a senior analyst at PVM Oil Associates in London, said Monday that there appeared to be some upside potential for oil prices after heavy losses across the board in September.

“A further uptick in trading activity coupled with tightening near-term oil fundamentals could well push oil prices back to $100/bbl,” Brennock said in a research note.

“Those of a bullish disposition have endured a summer of pain, but a winter of hope and expectation is on the horizon,” he added.

Echoing this call of a return to $100 a barrel, analysts at Goldman Sachs see Brent reaching triple digits over the next three months, before climbing to $105 over a six-month horizon.

The U.S. investment bank expects WTI to jump to $95 by around year-end, before hitting $100 over the next six months.

Read also: Senate tackles NUPRC over wrongful re-allocation of Atala oil field

Last month, oil prices declined by more than $4 to their lowest level since Russia’s invasion of Ukraine in late February, following demand concerns due to recession fears.

Asked whether a massive output cut from OPEC+ would likely be enough to send oil prices back to their June high, Saxo Bank’s Ole Hansen said, “I don’t think it is because what we have to consider is that OPEC+ has been struggling now for months to actually produce the quota levels they had agreed.”

“If they do cut by 1 million or by 1.5 million, they will have to change the quota system for that number actually to be a real cut in the market,” Hansen told CNBC’s “Worldwide Exchange” on Monday.

“It is probably also the reason why they are meeting face-to-face this week in Vienna because it is potentially a highly controversial decision that they may take. But I think the impact is probably going to be less than what the market is looking for,” he added.

Nigeria, one of Africa’s biggest oil-producing countries needs the oil price to rise and in the worst case, remain steady at any price above its revised budget benchmark of $62 a barrel to feasibly implement its 2022 N17.1 trillion budget.

According to the monthly oil market report, published by the OPEC for August, Nigeria’s production was 980,000 barrels per day, down more than 100,000 barrels per day from July.

Authorities in the petroleum industry claim that as a result, more than 200,000 barrels are lost every day, costing the nation millions of dollars in revenue.