By Prince Okafor
LAGOS—Despite the agreement reached by members of the Organisation of Petroleum Exporting Countries, OPEC, and non-OPEC members to cut oil production, an expert has expressed fears that oil majors may sabotage the deal.
Speaking to Vanguard, an energy analyst at FOREX Time (FXTM), Lukman Otunuga, said since the agreement was not legally binding, there was likelihood that oil majors will sabotage it and derail the objectives for which the agreement was reached.
He said: “Although the optimism over the pending cut has boosted oil prices, fears still linger over major oil producers cheating. With the agreement not legally binding and no penalties in place for going against the promise, oil could find itself lower in the New Year.”
He explained that though Nigeria had been exempted from the production cut, much attention must be directed towards how major oil producers will make the deal a reality.
Markets expect OPEC and non-OPEC members to cut oil production by an aggregate 1.76 million barrels in January to mitigate the over supply concerns.
“Many non-OPEC countries, such as Mexico and Azerbaijan, may face natural declines in production but the lack of transparency has made some express doubts over the declines being counted as cuts.
“While it is widely known that Russia plans to cut production by 300,000 barrels a day from current levels, the natural declines seen from other non-OPEC members could spark discussions of participants keeping output unchanged.”
“Although most of the non-OPEC cuts have been branded as symbolic amid the natural production declines expected, oil could be left vulnerable if the proposed 1.76mbpd production cut quota is not achieved in the New Year,” Otunuga said.
He noted that the prolonged period of depressed oil prices coupled with a resurgent dollar compounded Nigeria’s economic woes in 2016.
“It’s becoming increasingly clear that oil reliance has exposed the nation to external risks in the short term, steps have been taken to steer away from oil with diversification seen as a solution.”
While commending the Federal Government for basing the budget on oil benchmark of $42.50, he urged that adequate attention should be given to unrest in the Niger Delta region.