The Organisation of Petroleum Exporting Countries (OPEC) and its allies, a group known as OPEC+, unexpectedly announced on Sunday additional cuts to oil production of over 1.16 million barrels per day (bpd). But Africa’s biggest oil producer is unlikely to see any gains.
Nigeria has been unable to meet previous quotas which has shrunk dollar proceeds from oil sales. A significant amount of the country’s crude lies stranded as buyers turn to cheaper alternatives. The economy lies in ruins because, at the same time, the country is hemorrhaging cash faster than it has ever done, funding petrol subsidies.
The pledges raise the overall amount of cutbacks by OPEC+, which includes Russia and other allies, to 3.66 million bpd, or 3.7 percent of global demand.
Russia’s deputy prime minister said Moscow would extend a voluntary cut of 500,000 bpd until the end of 2023. The United Arab Emirates, Kuwait, Iraq, Oman, and Algeria said they would voluntarily cut output over the same time period.
The UAE said it would cut production by 144,000 bpd, Kuwait announced a cut of 128,000 bpd, Iraq said it would cut output by 211,000 bpd and Oman announced a cut of 40,000 bpd. Algeria said it would cut its output by 48,000 bpd.
The Saudi energy ministry said in a statement that the kingdom’s voluntary cut was a precautionary measure aimed at supporting the stability of the oil market.
The event on Sunday occurs the day before a virtually convened meeting of an OPEC+ ministerial panel, which also includes Saudi Arabia and Russia, and which had been anticipated to maintain the 2 million bpd oil curbs already in place through the end of 2023.
On Monday, OPEC+ converged by videoconference for the 48th meeting of the Joint Ministerial Monitoring Committee (JMMC), adopted the proposal.
Declining oil production, largely attributed to crude theft by the Federal Government and state-owned oil firms, has limited the amount of foreign exchange available to the Central Bank of Nigeria. This has impacted the ability of the apex bank to settle international airline ticket claims that were collected in naira but needed to be repatriated in dollars.
Parents whose children are studying abroad have also been stranded, and travellers have found it difficult to access dollars because of the inability of the apex bank to meet requests.
The output cut is expected to trigger an oil price rally. Brent crude, the international oil price benchmark, surged 5.31 percent to $84.13 per barrel as of 4:15pm Nigerian time on Monday. OPEC+ had made the decision to curb production after a short drop in prices last month, largely driven by concerns about the banking industry after some banks went under in the United States.
“OPEC is taking pre-emptive steps in case of any possible demand reduction,” Amrita Sen, an analyst at Energy Aspects, told Reuters.
Nigeria’s crude oil output rose to 1.3 million bpd in February, the most in 13 months, according to data from the Nigerian Upstream Petroleum Regulatory Commission. Nigeria revived production at some key streams such as Bonny Light that were halted for months by crude theft and technical issues. Some of these recovered output now struggle to find buyers.
“The increase in oil production was because some loose ends are being tightened,” Uwaye Omijie, a petroleum engineer, told BusinessDay.
Rising production hasn’t translated to much value as buyers have become fewer. Nigeria is still struggling to find buyers for its oil with more than half of the country’s April crude oil supply still unsold, according to Bloomberg.
Nigeria’s woes have been worsened by strikes at French refineries and seasonal maintenance at plants elsewhere in Europe which have acted together to curb demand.
Only a little of Nigerian crude traded last week, with more than 20 shipments for April loading still hunting for buyers, according to traders specialising in the West African market.
That’s similar to 10 days ago, when 20 to 25 of the cargoes — holding 1 million barrels of oil each — were on the market.
That’s a much weaker position than normal for this time of the month — when trade should be moving on to May’s barrels — and the prices the shipments can fetch are dropping, they said. Each cargo is about a million barrels of crude.
Read also: Oil producers under OPEC alliance to cut output by 1.16m from May
“The Nigerian backlog is a combination of higher freight costs, lower tanker availability — specifically into Europe — as well as lower overall demand for West Africa light sweet as crude from other regions is deluging markets,” Viktor Katona, lead crude analyst at Kpler, told Bloomberg.
Worse still, petrol subsidy payments is eating up whatever proceeds is made from crude sales. An analysis of the government spend in almost eight years of the President Muhammadu Buhari administration has risen above N11 trillion. Marketers now say, the government is borrowing to keep funding subsidy.
Subsidies have become something of an albatross. Every government since 1999 has recognised the need to end it, but few can summon the political will. Organised labour hovers in the shadows with the threat of strikes, and some analysts fear it will stoke inflation.
The new government coming from May 29 has vowed to end it. All the major candidates in the 2023 presidential elections said they would end it but it remains to be seen if the next president will have the political will to do it.
The reality, though, is that petrol subsidies present an existential threat to Nigeria’s fiscal health. Headline inflation has risen over 21 percent, the highest in nearly two decades, and could worsen with the removal of subsidies.
Unemployment is over 33.3 percent, underemployment is up to 22.38 percent, and labour productivity growth rate has collapsed to 1.7 percent in 2021 from 16.9 percent in 2012. Public debt has risen to over N46 trillion, representing about a quarter of the country’s GDP.
