• Friday, March 29, 2024
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Nigeria’s oil revenue threatened as OPEC+ mulls production raise at March meeting

Nigeria’s 2021 oil revenue at risk as OPEC’S new deal mandates 939,000 bpd cut

Nigeria’s chances of meeting its projected oil revenue target of N2 trillion to fund its 2021 budget is under threat with the Organisation of Petroleum Exporting Countries (OPEC) discussing the possibility of increasing its oil production levels at the next meeting.

Increasing supply in the global oil market without a corresponding increase in demand could lead to lower oil prices, a development that is harmful to petro-dollar economies like Nigeria.

The oil cartel is set to have a virtual meeting on March 4, 2021, where it will discuss raising output as much as half a million barrels per day starting in April.

Three OPEC+ sources told Reuters on Thursday an output increase of 500,000 barrels per day from April looked possible without building up inventories, although updated supply and demand balances that ministers will consider at their March 4 meeting will determine their decision.

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“The oil price is definitely high and the market needs more oil to cool the prices down,” one of the OPEC+ sources said. “A 500,000 bpd increase from April is an option – looks like a good one.”

A rally in prices towards $67 a barrel, the highest since January 2020, the rollout of vaccines and economic recovery hopes have boosted confidence the market could take more oil.

Nigeria needs the oil price to rise and in the worst case, remain steady at any price above the $40 benchmark of the 2021 budget, while also maintaining oil production estimate of 1.86 million barrels (inclusive of condensates of 300,000 to 400,000 barrels per day).

Nigeria, Africa’s largest economy, depends on earnings from oil to finance its N13.588 trillion 2021 budget.

Another major threat facing oil price is the decision by Saudi Arabia’s to end its voluntary cut of 1 million barrels per day (bpd) next month.

While Riyadh hasn’t shared its plans beyond March, expectations in the group are growing that Saudi Arabia will bring back the supply from April, perhaps gradually.

Some OPEC+ members also anticipate that the Saudis will be willing to ease cuts further, but it was not clear if they had had direct communication with Riyadh.

Saudi Arabia has warned producers to be “extremely cautious” and some OPEC members are wary of renewed demand setbacks. One OPEC country source said a full return of the Saudi barrels in April would mean the rest of OPEC+ should not pump more yet.

“The Saudi voluntary cut will be back to the market,” the source said. “I’m personally with no more relaxation, not until June.”

Russia, one of the OPEC+ countries allowed to boost output in February, is keen to raise supply and a source last week said Moscow would propose adding more oil if nothing changed before the March 4 virtual meeting.

The price of Brent oil has rebounded to more than $67 per barrel, with WTI trading above $63 as of Thursday afternoon. This is the highest level oil prices have seen in over a year.