Nigeria and other Organisation of Petroleum Exporting Countries (OPEC) members may be facing a fresh challenge of defending oil prices by increasing oil supply. This is thanks to a decision by Kuwait and Saudi Arabia to restart oil production from the two fields they share in the so-called neutral zone.
Saudi Arabia and Kuwait will on Tuesday (today) sign a deal to resume production at two major oilfields in a shared neutral zone after five years of stoppage. The two fields were pumping some 500,000 barrels per day (bpd) before production was halted first at Khafji in October 2014 and then at Wafra months later over a dispute between the two Arab Gulf neighbours.
The Kuwait Gulf Oil Company (KGOC) said on Monday the signing ceremony would take place in the neutral zone where the offshore Khafji field and onshore Wafra field are located.
The oil produced in the neutral zone in the border area is shared equally between the two nations.
Khafji was jointly operated by KGOC and Saudi Aramco Gulf Operations, while Wafra was operated by KGOC and Saudi Arabian Chevron.
It was not immediately specified when the two fields will start pumping again, but the agreement comes as oil prices are under pressure due to abundant reserves and weak global economic growth.
A barrel of Brent crude, the benchmark for Nigeria’s crude, sold for $66.37 on Monday, December 29, according to data obtained from the Bloomberg terminal. This compares with the $70 per barrel it sold in May.
The slump has prompted OPEC and its allies to make deeper production cuts starting new month.
Saudi Arabia pumps just under 10 million bpd, while Kuwait produces around 2.7 million bpd.
The news about oil production from the two fields will be a huge concern for OPEC and its allies who now face a dilemma on whether to include or exclude the neutral zone which was previously exempted from production cuts.
The resumption of oil production from Khafji and Wafra will not add to global supply because both Kuwait and Saudi Arabia comply with their production quota under the OPEC+ agreement, according to a source who spoke to Bloomberg.
However, any news about the restart of the neutral zone fields would punish prices as all reports so far have.
On December 5, OPEC and its allies (comprising a wider group of countries that have been involved in an oil alliance since 2016) reached a new production cut of around 1.7 million bpd.
The group, which pumps more than half the world’s oil, is expected to take on 372,000 bpd of the additional cuts that take effect from January, while countries outside the cartel will be responsible for 131,000 bpd.
More than any other country, Africa’s biggest oil-producing country needs the oil price to rise, and in the worst case remain steady at any price above the $57 benchmark of the 2020 budget. To achieve this, the country needs to avoid disruptions in crude production and also hope that the alliance under OPEC achieves its objective, even though many are yet to comply with the output cut, including Nigeria.
Contrary to a production benchmark of 2.1 million bpd used for the 2020 budget estimates by the Federal Government, Nigeria needs to cut production down by 53,000 barrels to arrive at a new quota of 1.685 million bpd, down from the reference production figure of 1.797 million bpd recorded in January 2019.
DIPO OLADEHINDE
