OPEC secures commitment of non members to cut supply

The prospect of real price recovery gathered momentum December 10, when non members of the Organisation of Petroleum Exporting Countries, (OPEC) to cut their output by 558,000 barrels per day following OPEC’s lead.

During a meeting in Vienna, Austria 11 oil exporting countries including  Azerbaijan, Bahrain, Brunei, Equatorial Guinea, Kazakhstan, Malaysia, Mexico, Oman, Russia, Sudan and South Sudan agreed to the talks.

The impact of this decision is that global oil supply will be reduced by 1,758,000 barrels per day and analysts are hopeful this will steer oil prices northwards to give a breather to the struggling economies of many oil producing nations including Nigeria.

Mohammed Barkindo, OPEC Secretary General said much of the production cuts were expected to come from Russia, which co-chaired Saturday’s meeting.

This is the first deal OPEC and non OPEC members reached since 2001 to jointly cut oil output and turn back the spectre of oversupply of oil. With the deal in the bag, emphasis will not be focused on compliance with the terms – something the cartel and non members do not have a sterling record of.

Shale producers in the United States and other non-OPEC members like Canada and Norway now constitute the big elephants in the room.

Following the announcement of the OPEC deal on November 30, shale oil producers scurried to their platforms to ramp up production.

Shale producers in the US with a break-even cost of between US$20 – US$55, are hoping to benefit from a marginal rise in oil prices and may act as spoilers to the agreements reached.

Unlike in the past where it took weeks for shale producers to mobilise to their platforms, advanced fracking technology is letting them achieve this in a matter of days and they are poised to take advantage of price rebounds from the OPEC deal.

Analysts contend that Nigeria now needs to deepen reforms in the oil sector and make deeper commitment to engage militants in the Niger Delta who are destroying oil and gas infrastructure to benefit from the exemption it got.

“Despite several attempts by the government to engage in peace talks with the region’s militant groups, a lasting peace or ceasefire has not been negotiated,” said Luke Doogan, analyst at West Sands Advisory Limited.

The impact of this situation is that investments continue to elude the country with serious repercussions. Chevron, in its 2017 programme does not include Nigeria in its plans.

“It is easy to know that if the investment climate is uncertain, you still have the PIB which is now the PIGB and we have been on it back and forth, when oil price was a $100 per barrel, many investors can cope with the uncertainty because the margins were high so now if your margin is very low and government is creating uncertainty and there is crises in the Niger Delta why would you want to put your money in a country where there is so much risks?” said Taiwo Oyedele, PwC Head of Tax.

ISAAC ANYAOGU