At the World Economic Forum in Davos, Donald Trump, president of the United States, called on Nigeria and other Organisation of Petroleum Exporting Countries (OPEC) to push down global oil prices and insisted that central banks around the world lower interest rates ‘immediately’ afterwards.
In his speech to executives on January 30, the US president urged Nigeria and other producers to lower the cost of crude oil, expressing dismay that they had not done so already.
“I’m going to ask Saudi Arabia and OPEC to bring down the cost of oil. You gotta bring it down. Which frankly I’m surprised they didn’t do before the election,” Trump said.
“Right now, the price is high enough that that war will continue,” he said, referring to Russia’s full-scale invasion of Ukraine and suggesting that the elevated oil price was helping to sustain Vladimir Putin’s war machine.
“You gotta bring down the oil price, that will end that war. You could end that war,” he added.
However, Standard Chartered has argued that Trump is unlikely to get his wish for several reasons.
According to commodity experts, the link between lower oil prices and foreign policy objectives is not a new one. Historians have drawn a link between the 1985-86 oil price crash and the fall of the Berlin Wall in November 1989, as well as the dissolution of the Soviet Union in December 1991.
StanChart explained that OPEC has limited power to end the Russia-Ukraine war immediately through a reduction in the oil price, with OPEC ministers likely viewing this strategy as a very inefficient and costly way of attempting to achieve foreign policy objections relative to, for example, diplomatic channels and targeted sanctions.
Indeed, Saudi Arabia’s energy minister and several OPEC+ counterparts held talks following Trump’s call to lower oil prices. Still, delegates said its February 3 meeting is unlikely to adjust its current plan to start raising output from April.
StanChart argued that the decision by OPEC+ to delay the planned output increase by three months to April 2025 and extend the full unwind of production cuts by a year until the end of 2026 will ensure that oil markets are not oversupplied in 2025.
According to StanChart, by delaying the start of voluntary cut unwinds and flattening the slope of the month-on-month increases, the organisation has effectively removed a large amount of oil from the 2025 plan.
Further, StanChart’s supply-demand model implies that output can increase under the new schedules without causing a global inventory build, even without consideration of compensation.
StanChart says the market has not priced in the full extent of how much oil has been removed from the plan.
Previously, StanChart correctly predicted that, given the negative market sentiment that ruled for most of 2024 coupled with an overly pessimistic market view of 2025 balances, the best tactical choice for ministers was to delay any unwinding of voluntary cuts to the end of first quarter of 2025 and perhaps even further.
According to StanChart, much of the negative sentiment that has dominated oil markets over the past couple of months can be chalked up to misapprehensions about the tapering mechanism for the voluntary cuts made by eight OPEC+ countries.
Many traders are worried that the balance of oil demand growth and non-OPEC+ supply growth might not offset the scale of restored OPEC+ output, leaving oil markets oversupplied.
However, the experts have pointed out that this assumption flies in the face of continued reassurances from OPEC+ members that the tapering would be fully dependent on market conditions rather than being automatic.
Implications for Nigeria
Nigeria and OPEC members, including allies, are yet to react to Trump’s call. The group already has a plan in place to start raising oil output from April, gradually unwinding previous cuts.
That plan had been delayed several times because of weak demand.
OPEC+ is holding a meeting of its Joint Ministerial Monitoring Committee today.
Nigeria’s crude oil output has maintained a downward curve in the last four years, dropping from an average of over two million barrels per day in 2019 to around an average of 1.5 million barrels in 2024.
Nigeria failed to meet its OPEC quota throughout 2022 and 2023 and struggled to meet its reduced quota of 1.5 million bpd in 2024.
While the Nigerian government has been boasting lately of increasing oil output to the tune of 1.8 million bpd, the latest data from the Nigerian Upstream Petroleum Regulatory Commission show that daily production of crude oil, excluding condensates, stood at an average of 1.484 million in 2024.
This shows that the country was still shy of its OPEC quota of 1.5 million bpd.
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