As OPEC convenes today…

Ministers of the Organisation of Petroleum Exporting Countries (OPEC) will convene in Vienna today for the 167th ordinary meeting of the oil cartel. Top on the agenda is the decision on whether to stick to its “no-cut in production output” strategy and maintain its target of 30 million barrels per day (bpd). OPEC pumps about 40 percent of the world’s crude oil but its supply surged to 31.2 million bpd in April, according to the International Energy Agency.

In its meeting of November 27, 2014, the organisation refused to cut its output despite the price collapse. The oil cartel preferred to recover market share by slowing higher-cost production in the US shale which had been encouraged by high prices of around $100 a barrel.

OPEC’s decision to stick to its target of 30 million bpd appears to be working. Oil prices have recovered more than 40 percent from a six-year low in January 2015 as US production eases from the highest in more than four decades. The rebound will help vindicate the approach which favours market share over prices in a bid to drive out high-cost producers. Growth in US shale oil, the primary competition for OPEC, is tapering off in the face of lower prices.

At the organisation’s November 2014 meeting, Saudi Arabia, the United Arab Emirates, Kuwait and Qatar rebuffed objections from the other eight members, in particular Iran, Venezuela and Algeria, to their plan. Members who opposed OPEC’s November decision criticised it again early this year. While there may be resistance at today’s conference, it is likely that OPEC will maintain its daily production target of 30 million barrels.

In event OPEC decides to cut output today, it is unlikely to curb output alone without the participation of non-OPEC countries. Before now, some OPEC members tried to bring major non-OPEC producers, such as Russia, on board in cutting supplies. Core Gulf OPEC members are not wavering in their strategy to focus on market share rather than cutting output alone, suggesting big policy changes are unlikely at today’s meeting unless non-OPEC producers change their stance.

Beyond OPEC’s strategy of defending market share, Nigeria is also battling with the increasing number of its stranded crude oil cargoes as the country continues to struggle for buyers of its crude. Recent data show that around 10-12 million barrels of Nigerian crude were stranded on the water from the March programme.

According to agency reports, weak buying from Asia and other regular buyers of Nigerian crude oil has left a large overhang of March, April and May cargoes. India, which recently replaced the United States as Nigeria’s biggest oil market, cut its import of Nigeria’s crude even though its oil imports increased as a result of drop in oil prices. China’s top three suppliers of crude oil are Saudi Arabia, Angola and Russia, accounting for 15 percent, 13 percent and 11 percent, respectively.

To avert this kind of scenario, more crude oil producing countries are shifting their focus to refining instead of just exporting crude. Effectively, crude oil producers who lack a developed refinery sector leave this money on the table for refiners to cash in.

Equally, some OPEC members like Saudi Arabia, Kuwait and the United Arab Emirates have not only boosted their refining capacity but have added trading arms, selling more crude oil when the price of crude is high and selling more products when the price of crude is low.

We therefore call on the new administration to boost Nigeria’s refining capacity by taking a quick decision on Nigeria’s dilapidated refineries as well as creating a conducive environment that will encourage private investors to build new refineries with the target of increasing the country’s refining capacity from 445,000 bpd to about 1 million bpd. In addition, the country should also invest in refineries in Europe and Asia as outlets for its crude, as most Gulf OPEC members are currently doing. This will certainly reduce the cases of unsold Nigerian crude cargoes as currently obtainable.