Oil prices fell on Tuesday after a meeting of Organisation of Petroleum Exporting Countries (OPEC) to decide on production policy failed to reach a consensus and was rescheduled to December 3.
Oil prices, which had been on track to increase by over 20 percent last month, fell early Tuesday. International benchmark Brent crude traded at $47.56, down around 0.65 percent, while U.S. West Texas Intermediate (WTI) fell 0.66 percent to $45.02.
Production cuts are supposed to be lowered by around 2 million bpd to 5.8 million bpd as of January 1, 2021 in line with an agreement in April. But experts say OPEC+ meeting on Tuesday was postponed due to some dissenting voices from OPEC ranks. These countries, including the ones with strained economies, are in favour of a higher production level.
“The shock to the oil industry is massive and its severe impacts will likely reverberate in the years to come,” Abdelmadjid Attar, OPEC president and Algeria’s energy minister, told the group.
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“The pandemic continues to rage with cases soaring in many regions around the world. It continues to affect adversely the global economy and, consequently, the world energy markets, in an unprecedented manner,” he said.
OPEC and allies have since moved to postpone talks through to Thursday, Reuters reported on Tuesday, citing three unnamed sources, as key players disagreed on how much oil they should pump amid weak demand.
The group, which is comprised of some of the world’s largest crude producers, had initially been expected to outline the next phase of production policy on Tuesday.
“Our base case remains that the group will err on the side of caution and heed the market’s anxieties stemming from the virus resurgence on both sides of the Atlantic and unite behind a three months delay in its next phase 1.9m bpd of tapering to April 2021,” said Ehsan Khoman, head of MENA research and strategy at Mitsubishi UFJ Financial Group, in a recent research
report.
“Absent any unforeseen event risks leading up to the meeting, we do not anticipate much price action post-meeting given markets have all but priced in a 3 months extension,” he said.
A combination of lower oil price and lower oil production has often meant Nigeria, Africa’s biggest oil producer, earn less in foreign exchange and fund its budget deficit. This is because oil accounts for 90 percent of Nigeria’s foreign exchange and 85.6 percent of Nigeria’s total export.
In Q3 2020, the oil sector contracted by -13.89 percent (year-on-year), indicating a sharp contraction of -20.38 percent points relative to the rate recorded in the corresponding quarter of 2019, the National Bureau of Statistics (NBS) said in its quarterly report released on Saturday.
Nigeria joined OPEC+ to cut supply by up 10 million barrels per day between May and June 2020, 8 million bpd between July and December 2020, and 6 million bpd from January 2021 to April 2022, respectively.
As a result of the output cut, Nigeria’s oil production was pegged at 1.412 million bpd, 1.495 million bpd, and 1.579 million bpd, respectively, for the corresponding periods in the agreement, as against the 1.829 million bpd of dry crude oil that was the reference production in October 2018.
Uncertainty often surrounds how Nigeria plans to implement crude production cuts after it has agreed with OPEC, due to its big impact on investment plans.
“In past cuts, there was never any great expectation that African countries would comply fully with them,” Niyi Awodeyi, CEO at Subterra Energy Resources Limited, said.
“The regulator has been busy drawing up instructions for operators to comply, but the key point is that following the price crash in mid-March we have seen very deep cuts in CAPEX by all major operators in Nigeria,” Awodeyi said.
