World’s top oil producers rally to extend production cut

The world’s biggest oil producers are considering extension of a deal to cut oil production by 1.8 million barrels per day agreed last year to March 2018, rather than July this year but it is not clear if Nigeria will still enjoy further exemptions

 

There are now indications that beyond Russia and Saudi Arabia who are spearheading the move, Kuwait and Iran are positively inclined to see the cuts extended. Reuters reports that that the Iranian position is less predictable as it was the only OPEC member allowed to increase its output under the supply cut deal and holds presidential elections on Friday.

 

While Nigeria is in favour of cuts, it is not clear it could still be granted exemptions. “The indications that I have so far is that there is willingness to extending that (output cuts). I expect we will get OPEC exemption but one year from now will it be renewed? I am not too sure,” said Ibe Kachikwu, Nigeria’s deputy minister of petroleum resources told journalists on May 3 in Houston USA.

 

At a joint press conference in Beijing on Monday, the energy ministers of two of the world’s biggest oil producers stated this.

 

“Preliminary consultations show that everybody is committed” to the output agreement and no country is willing to quit, said Novak. “I don’t see reasons for any country to quit,” said Alexander Novak, Russia’s energy minister.

 

Khalid Al-Falih, Saudi Arabia oil minister said, “The agreement needs to be extended as we will not reach the desired inventory level by end of June,” He adds, “Therefore we came to the conclusion that ending will probably be better by the end of first quarter 2018.”

 

Oil markets reacted favourably to the development. U.S. West Texas Intermediate oil futures added as much as 1.8 percent to $48.70 a barrel on the New York Mercantile Exchange, the highest since May 2. Global benchmark Brent crude added 1.7 percent to $51.69 on the ICE Futures Europe exchange.

 

“We have, before coming to this announcement today, reached out to many of our colleagues within and outside OPEC, and I think there is general consensus that this is the right approach and the right thing to do,” Novak said of the proposal to extend the curbs for 9 months according to Bloomberg reports.

 

The deal which is seeks to curb global inventories to a 5-year average was aimed at propping up oil prices. Nigeria secured exemptions on account of militancy which cut production by half a million barrels last year coupled with low oil prices which made it difficult for government to meet its obligations.

 

In the past six months Nigeria’s production has recovered and budget benchmark figures of 2.2million barrels looks likely. According to OPEC’s latest Monthly Oil Market Report for May, Nigeria’s output was put at 1.484 million bpd for April, from 1.21 million bpd in March.

 

 

OPEC figures rely on direct communication and do not include condensate usually factored into Nigeria’s output calculation.

 

Also, a Reuters report that Royal Dutch Shell is conducting tests on its 249,000 barrel per day Trans Forcados oil export pipeline, which has been offline for the better part of a year, builds hopes for further recovery.

 

Analysts say the prospects for further cuts hinges on how well Nigeria argues its case.

 

“It is expected that Nigeria will receive further exemption depending on how the case is made,” says Chijioke Mama, energy analyst and founder of EnergyDatar, an energy intelligence firm.

 

Mama further said, “Because, in spite of improving production, the underlying threat of future and further losses in the Niger Delta due to militancy is not totally eliminated yet.”