Nigeria’s rising oil output threatens new OPEC cut exemptions

Nigeria has a harder task to sell further exemption from an OPEC production supply agreement reached last year on account of production recovery and bearish oil prices.

The world’s top oil producers agreed to cut 1.8 million barrels from production to prop up oil prices last year but 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 relies on third party documentation and does 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.

Now, Saudi Arabia and Russia have indicated interest to see current output cuts extended to the end of March 2018 which is inducing a mild recovery of crude oil prices.

At a joint press conference in Beijing on Monday, the energy ministers of two of the world’s biggest oil producers say extending output cuts will curb global inventories to a 5-year average which is the goal of the supply cap deal agreed in November last year.

“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.

Ibe Kachikwu, Nigeria’s deputy minister of petroleum resources told journalists on May 3 in Houston USA, at the recently held OTC Conference that Nigeria will seek for a further six-month extension of its exemption from reducing oil production granted by the Organization of Petroleum Exporting Countries (OPEC).

“The indications that I have so far is that there is willingness to extending that. I expect we will get OPEC exemption but one year from now will it be renewed? I am not too sure.”

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.”