By Udeme Akpan
The global oil market was very unstable in 2017, as a result of many factors, especially over-supply, speculation and politics, thus causing anxiety in major oil producing nations such as Nigeria, Algeria, Angola, Ecuador, Equatorial Guinea, Gabon, Islamic Republic of Iran, Iraq, Kuwait, Libya, Qatar, Saudi Arabia, United Arab Emirate and Venezuela.
Available figures showed that the oil price stood at over $50 in the first quarter of 2017, dropped to $49 in the second quarter, before rising to $56 per barrel towards the end of third quarter through the strategic interventions of both members of the Organisation of Petroleum Exporting Countries, OPEC, and non-OPEC members. The price started heading towards $60 in the last quarter of that year before hitting $70 per barrel in the first quarter of 2018.
From all indications, the price will likely continue to rise for a greater part of this year because of some factors. First, the possible shut down of petroleum operations by militants, especially Niger Delta Avengers, NDA could culminate in output reduction, low supply and high price. Second, the increased compliance of OPEC members to the on-going output cut will further strengthen oil market stability.
Already, the OPEC/Non-OPEC Joint Ministerial Monitoring Committee (JMMC) which met in Muscat, the Sultanate of Oman, on 21 January 2018 has disclosed that, based on the report of the Joint Technical Committee (JTC) for the month of December 2017, following continuous months of excellent performances, OPEC and participating non-OPEC countries have achieved a record-breaking conformity level of 129per cent with their voluntary production adjustments.
It indicated that: ‘’the monthly average conformity level for the first year of the Declaration of Cooperation was a remarkable 107per cent. The JMMC was established following OPEC’s 171st Ministerial Conference Decision of 30 November 2016, and the subsequent Declaration of Cooperation made at the joint OPEC-Non-OPEC Producing Countries’ Ministerial Meeting held on 10 December 2016 at which 11 (now 10) non-OPEC oil producing countries cooperated with the 13 (now 14) OPEC Member Countries in a concerted effort to accelerate the stabilization of the global oil market through voluntary adjustments in total production of around 1.8 million barrels per day.
‘’The resulting Declaration, which came into effect on 1 January 2017, was for six months. The second joint OPEC-Non-OPEC Producing Countries’ Ministerial Meeting, held on 25 May 2017, decided to extend the voluntary production adjustments for another nine months commencing 1 July 2017. At the third joint OPEC-Non-OPEC Producing Countries’ Ministerial Meeting, held on 30 November 2017, it was agreed to amend the Declaration of Cooperation so that it will take effect for the entirety of 2018.
‘’Across a broad range of indicators, the first year of the Declaration of Cooperation has been a great success. In December 2017, OPEC and participating non-OPEC producing countries achieved an excellent conformity level of 129per cent, the highest since the start of the Declaration of Cooperation. This high conformity level has been validated by a diverse range of reporting agencies and media outlets.
“Conformity levels have increased on a monthly basis, from 87per cent in January to the outstanding current level. Once more, the unwavering resolve of participating countries to rebalance the market has been amply demonstrated. The JMMC expressed satisfaction with the overall results and urged all participating countries to continue and, to the extent possible, intensify their collective and individual efforts, in the interests of bringing stability to the oil market. The JMMC will strive to maintain or exceed full conformity by all participating countries, throughout 2018.”
“The JMMC noted with satisfaction that the market had responded positively to the concerted actions of participating countries, to the benefit of producers, consumers and the global economy alike. Recent data confirmed that global oil demand growth will continue on a positive trajectory in 2018, buoyed by the strong performance of the global economy.”
This stellar performance by participating countries in 2017 launches the New Year on an extremely positive footing, preparing the path for further successes in 2018.’’
Expectedly, the Committee has the support of many stakeholders. One of them is the chairman of the Joint Ministerial Monitoring Committee (JMMC), HE Khalid A. Al-Falih, disclosed at the meeting of the Committee that: ‘’It is this conformity which was the bedrock of our success as a group in 2017, and I intend to dedicate my energy over the coming year to maintain or even succeed that performance in 2018.
‘’I clearly see that while the Declaration of Cooperation has established the requisite structure and foundation for the market stability we seek, the JMMC has provided a credible mechanism, which has facilitated the restoration of market balance.
‘’As you know, when we started this journey more than a year ago, we faced severe challenges in transforming market sentiment from deeply negative to positive, and restoring confidence in our ability to bring stability to the market. At the time, concerns were expressed that similar frameworks had unravelled in the past.
‘’During the first half of 2017 we faced considerable challenges in bringing down inventories due to structural and seasonal factors. But by now, from an overhang in the market of around 340 million barrels of oil we have eliminated more than 220 million barrels, while between June and December last year, floating storage dropped by nearly 50 million barrels. As a result, we are moving ever closer towards a balanced market.
‘’Likewise, levels of conformity have been extraordinary, averaging above 100%. Clearly, our work is achieving the desired effect, and there is widespread recognition of those successes. Results speak for themselves.
‘’Improved market stability and strength is apparent, which is underpinning more broadly an improving global economy as well as resulting in a return of investment flows into future supply, crucial for not only meeting growth in oil demand but also offsetting natural declines in several producing regions. And we as major producers have held together despite numerous challenges. The success achieved in the past year can be put down in no small part to the remarkable work of this committee.’’
HE Mohammad Sanusi Barkindo, OPEC Secretary General, added that: ‘’Across a broad range of indicators, the first year of the Declaration of Cooperation has been a great success. In December 2017, OPEC and participating non-OPEC producing countries achieved an excellent conformity level of 129%, the highest since the start of the Declaration of Cooperation. This high conformity level has been validated by a diverse range of reporting agencies and media outlets.
‘’Conformity levels have increased on a monthly basis, from 87% in January to the outstanding current level. Once more, the unwavering resolve of participating countries to rebalance the market has been amply demonstrated.
The JMMC expressed satisfaction with the overall results and urged all participating countries to continue and, to the extent possible, intensify their collective and individual efforts, in the interests of bringing stability to the oil market. The JMMC will strive to maintain or exceed full conformity by all participating countries, throughout 2018.’’
However, the expected stability of the market will impact on the revenue and by extension the capacity of oil exporting nations, especially Nigeria to fund their 2018 budgets. While presenting Nigeria’s 2018 budget to the National Assembly, President Muhammadu Buhari had stated that the budget was based on reference price of $145 per barrel and 2.3 million barrels per day, including condensates.
He stated that: ‘’total federally-collectible revenue is estimated at 11.983 trillion Naira in 2018. Thus, the three tiers of Government shall receive about 12 per cent more revenues in 2018 than the 2017 estimate.
‘’Of the amount, the sum of 6.387 trillion Naira is expected to be realised from oil and gas sources. Total receipts from the non-oil sector are projected at 5.597 trillion Naira.’’