Adewale Sanyaolu with agency reports
There are indications that the Organisation of Petroleum Exporting Countries (OPEC) may cut oil production as it meets today and tomorrow in Vienna, Austria, to discuss options to mitigate the impact of a loss of demand arising from the deadly coronavirus outbreak.
The development may not augur well for Nigeria should the cartel go ahead with the plans as Brent crude yesterday traded at $56.26, its lowest level since January 2019, indicating a $3.74 shortfall from Nigeria’s 2020 budget benchmark of $60.
Should the planned cut sail through, that will mean reduced oil production for the country, which is still struggling to fund its 2020 budget, premised on a daily oil production of 2.2 million barrels per day.
Nigeria had last December given assurance of its total commitment to the full implementation of the agreement with OPEC and 10 non-OPEC member states also known as the OPEC plus or the Declaration of Cooperation (DoC) Countries.
In a tele-conference with the Chairman of the OPEC-non-OPEC Joint Ministerial Monitoring Committee (JMMC) and Minister of Energy of the Kingdom of Saudi Arabia, Prince Abdulaziz Bin Salman Bin Abdulaziz Al-Saud, and some other DoC ministers, Minister of State for Petroleum Resources and Head of its Delegation to the OPEC Conference, Timipre Sylva, recalled his assurance to the last meeting of the JMMC in September, in Abu Dhabi, that Nigeria would, within three months, be one 100 per cent compliant with the agreement that it had voluntarily entered into, noting that in fulfilment of that pledge, Nigeria’s compliance level has witnessed tremendous progress, month by month, since last August resulting in one 100 per cent compliance in November 2019.
OPEC and its allies could cut production by more than a million barrels a day at a rescheduled meeting this month, as policymakers work to arrest a double-digit collapse in the price of oil.
“I think it is a ‘go big or go home’ moment for the organisation,” Helima Croft, global head of commodity strategy at RBC Capital Markets, told CNBC Monday.
“If you are going the route of an extraordinary meeting, you will have to come up with a substantial reduction in order to prevent the market from further tanking,” she said, adding that OPEC might potentially cut production in the “one million (barrel) plus range” this month. The Wall Street Journal also reported on Monday, citing OPEC officials, that kingpin Saudi Arabia was considering an option to cut by 1 million barrels a day to jolt markets.
Various scenarios are under active consideration. While Croft suggested OPEC could cut “potentially in the million plus range,” other analysts have suggested a smaller cut may be more likely.
“We’re expecting production cuts to the tune of about 500,000 barrels per day,” Yogi Dewan, CEO of Hassium Asset Management, told CNBC’s “Capital Connection.”
“OPEC is looking at this very, very carefully, just thinking to themselves, we need to do something here just to help support oil prices,” he added.
Oil has struggled following the outbreak of a new coronavirus in China that was first reported in late December and has spread globally in recent weeks. China’s National Health Commission said there have been 17,205 confirmed cases and 361 deaths in the country as of the end of Sunday.
OPEC and its allies last year agreed to reduce supply by 1.7 million barrels per day until its next meeting in March 2020, but the group is now likely to reschedule its March 5-6 meeting for February, underscoring the severity of the situation and ongoing price declines.
Reports say the energy alliance’s Joint Technical Committee, a non-ministerial sub group that reviews the oil market, will meet on Tuesday and Wednesday in Vienna, while a full OPEC meeting is likely to follow next week.