Nigeria secures exemption from OPEC production cut… what next?

Last week, the Organisation of Petroleum Exporting Countries, (OPEC) endorsed Nigeria’s position on oil production cuts granting the country exemption from further cuts until Nigeria stabilises its production.

On December 10, 2016, the group further declared to cooperate with non-OPEC oil producing countries to accelerate the stabilisation of the global oil market through voluntary adjustments in total production of around 1.8 million barrels per day.

The initial production cut agreement, which came into effect January 1, 2017, was for six months. The second joint OPEC-Non-OPEC Producing Countries’ Ministerial meeting on May 25, 2017 decided to extend the voluntary production adjustments for another nine months effective July 1, 2017.

At OPEC’s meeting in Vienna, Austria, its Joint Ministerial Monitoring Committee upheld Nigeria’s position that the exemption, which was extended by another six months last May, should be sustained at least until it meets again in November 2017.

Ibe Kachikwu, minister of State for Petroleum Resources, who led the Nigerian delegation, had argued that although Nigeria was making considerable progress since October 2016 in its production recovery efforts, it was not enough as full stability had not been attained.

Kachikwu said that although Nigeria’s oil production hit 1.802 million barrels per day in the month of August that was not enough justification for a call by some countries for Nigeria to be brought back into the fold.

Recently, Russia and Venezuela have been calling on OPEC to bring in Nigeria and Libya production after supply overhang continued.

As one of the older OPEC members that has continued to work for the good of the group and its member countries, Kachikwu said, Nigeria was bound by whatever agreements and resolutions collectively made by OPEC, including the need to cap its oil production when it has stabilised at 1.8 million bpd.

He also said that although Nigeria was not a member of the five nation JMMC, the country was in support of and had confidence in the work of the committee to stabilise the market

In the euphoria of Nigeria’s further exemption from cuts, it is easy to forget that Africa’s largest economy’s oil sector badly needs reforms. Nigeria’s Petroleum Industry Governance Bill which has been passed in the Senate has been stuck in the House of Representatives for the past four months.

Progress has not been made either on the other components of the PIB including the fiscal element, the most important for investors and as the host community bill which holds the potential to resolve militancy in the Niger Delta. This is does not indicate that the country is in a hurry to ramp up investments and develop the most critical sector of its economy.

Nigeria’s exemption from the deal while only temporary provides an opportunity to stabilise production without the distraction of facing cuts to production in a country that badly needs revenue as it is funding about 70 percent of its budget with loans both domestic and foreign.

Time too is really of the essence. OPEC said that recent market developments, indicate that the oil market was moving in the right direction towards the objectives of the Declaration of Cooperation which is to rebalance the oil market. Recent market inventory indicate that global oil demand growth in 2017 was now better than expected, with 2018 world oil demand anticipated to be robust.

“Commercial oil stocks in the Organisation of Economic Cooperation and Development, OECD fell further in August and the difference to the latest five-year average has been reduced by 168 million barrels since the beginning of this year,” said a report by the group which also indicated parties to the agreement recorded the highest compliance with voluntary adjustments in production attaining over 116 per cent level.

ISAAC ANYAOGU