Nigeria may join OPEC production cut if…

Nigeria which is exempted from the current OPEC cuts could be asked to join the deal if her oil output recovery continues to be on the rise. A situation analysts say is already affecting the price of the commodity negatively.

Oil prices hit ten-month lows last week, pushing crude oil well into bear market territory. Hopes of the OPEC deal balancing the market are fading fast. The plunging price took a breather weekend, hovering at the lowest levels since the third quarter of 2016. The price of Brent which is the equivalent of the Nigerian Bonny light was $45.62

Nigerian oil output has recovered to its highest level in more than a year as militant attacks have declined substantially, along with the return of key export grade Forcados.

Including crude and condensate, output from OPEC’s biggest African producer plummeted to near 30-year lows of around 1.2 million b/d in 2016, from 2.2 million b/d previously, as attacks on oil facilities in the Niger Delta rose at an alarming pace due to resurgent militancy.

Nigerian crude oil production in May which jumped to 1.73 million barrels per day, up 80,000 b/d from April, its highest level since March 2016.

Exports of crude oil and condensate are set to jump to over 2 million b/d in August, making it the longest loading program in 18 months, according to Platts estimates.

With output of crude and condensate now near its full capacity of 2.2 million b/d, Nigeria, which is exempt from the current OPEC cuts, could be asked to join the deal if the recovery continues.

In late May, Emmanuel Kachikwu ,minister of Petroleum acknowledged that Nigeria has a “responsibility” to join in the OPEC-led output cuts should its crude production return to 1.8 million b/d.

With Nigeria’s production of condensate averaging around 300,000-400,000 b/d, it looks like this milestone might be hit sooner than expected.

“If they hit 2.1 or 2.2 (million b/d) and we get through the summer and potential situation with the [president’s] health, and it looks like production is stable, at that point you consider making them make the same level cuts as everybody else,” said Helima Croft, head of commodity strategy at RBC Capital Markets.

There is a growing consensus that the OPEC cuts won’t be enough to drain inventories, so there are murmurings about the possibility of deeper cuts. Iran’s oil minister suggested the idea on state radio earlier this week. But that seems like a remote possibility at this point. Russia has previously dismissed the idea, and very few other producers have shown any interest.

The prospect of deeper cuts would help prices but also cede even more OPEC market share to rival drillers. As a result, OPEC is likely to let the market sort itself out for the time being.

Meanwhile, the head of Macquarie predicts that the agreement will expire and fall apart at the end of the compliance period in March 2018. “We actually see this OPEC agreement breaking up towards the middle of next year. In that case, we’re going to see a huge amount of extra oil on the market next year,” Macquarie’s head of European oil and gas research, Ian Reid warned.

“Along with Libya, Nigeria has been exempted from the OPEC production cuts due to the large volume of oil that was disrupted from militant attacks on pipelines and other infrastructure. Now, Nigeria is restoring output quickly, having ramped up to 1.73 million barrels per day (mb/d) in May, up from a low of 1.2 mb/d last year after Shell lifted force majeure on Forcados exports.

Olusola Bello