As NNPC, oil firms discuss output cut, allocation

By Udeme Akpan

Global oil traders are currently awaiting the release of Nigeria’s crude oil lifting programmes for May and June 2020 to guide their decisions, following many choices presented by excess supplies and low prices.

Investigation by Vanguard showed that the Nigerian National Petroleum Corporation, NNPC, had discussions with different stakeholders, including the International Oil Companies, IOCs and their indigenous counterparts.

It was gathered that further consultations, targeted at reaching an agreement on output allocation of the 1.42 million barrels per day, mb/d to be produced by Nigeria in line with OPEC directive in May and June 2020 was slightly delayed by the Coronavirus pandemic.

The Group Managing Director, NNPC, Mallam Mele Kyari could not be reached yesterday, but a source in the Ministry of Petroleum Resources, who preferred not to be named because he was not permitted to speak, said: “The Ministry of Petroleum Resources is aware of the ongoing consultation on output cut and compliance. Remember the Minister of State for Petroleum Resources, Chief Timipre Sylva, who led the nation’s team to the recent meeting of the Organisation of Petroleum Exporting Countries, OPEC is in full support of the compliance.”

Traders express worry

He added: “There is a need to carry everyone along. We are sure that it would soon be concluded. Thereafter, Nigeria’s loading programmes for May and June 2020 would be released to guide market operators.”

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Meanwhile, a source in the London market, said: “Traders are worried about the delay of Nigeria’s oil lifting programmes for May and June 2020. But they would have to wait for them.”

Why prices drop

However, in an interview with Vanguard, Prof. Omowumi Iledare, the Ghana National Petroleum Corporation (GNPC) Professorial Chair in Oil and Gas Economics and Management, Institute for Oil and Gas Studies, University of Cape Coast, said: “There are many reasons for this fall in price and they are all related. Primarily, Coronavirus created a global shutdown of economic activities that are extremely depended on oil consumption. Then, key producers, US, Saudi Arabia and Russia kept pumping oil.

“Excess supply led to high inventory, which created significant equilibrium and price fell drastically as inventory built up. The slow response to decrease supply under disappearing global economic activity due to the virus is why we are where we are.”

He said: “In the short run, prices will continue to fall until it begins to rise when inventory is depleted or nearly so. Nevertheless, that depends on whether OPEC + reduces production dramatically.

What FG should do

“There is nothing the government can do but to revise its budget and prioritize actual spending to stimulate the economy. I may actually suggest revisiting salary structure of some agencies and trimming down employment in wasteful areas.

“Government may also look at unsustainable budget items, bloated overhead. It will take several months to reach the budget price of $30 per barrel in a sustained manner. Government, whose revenue is highly dependent on oil revenue, is in dare situations. Perhaps one can suggest to the government to borrow money locally to fund stimulating the economy. I would advise the government to avoid foreign borrowing because foreign debt is already beyond a manageable level.”

He added: “In the long run, the government needs to be less dependent on using the price of oil to define its budget, especially the concurrent expenditures. In the short run, the government may need to address petroleum pricing issues.”

Need for oil cut

In a statement obtained by Vanguard, OPEC had stated: “The 10th (Extraordinary) OPEC and non-OPEC Ministerial Meeting was held via videoconference, on Sunday, 12 April 2020, under the Chairmanship of HRH Prince Abdul Aziz Bin Salman, Saudi Arabia’s Minister of Energy, and co-Chair HE Alexander Novak, Minister of Energy of the Russian Federation.

“The Meeting reaffirmed the continued commitment of the participating producing countries in the ‘Declaration of Cooperation’ (DoC) to a stable market, the mutual interest of producing nations, the efficient, economic and secure supply to consumers, and a fair return on invested capital.

“The Meeting emphasized the important and responsible decision to adjustment production at the 9th (Extraordinary) OPEC and non-OPEC Ministerial Meeting on 09/10 April. Furthermore, the Meeting took note of the G20 Extraordinary Energy Ministers Meeting held on April 10, which recognized the commitment of the producers in the OPEC+ group to stabilize energy markets and acknowledged the importance of international cooperation in ensuring the resilience of energy systems.

“In view of the current fundamentals and the consensus market perspectives, and in line with the decision taken at the 9th (Extraordinary) OPEC and non-OPEC Ministerial Meeting, all Participating Countries agreed to reaffirm the Framework of the DoC, signed on 10 December 2016 and further endorsed in subsequent meetings; as well as the Charter of Cooperation signed on 2 July 2019.

“Adjust downwards their overall crude oil production by 9.7 mb/d, starting on 1 May 2020, for an initial period of two months that concludes on 30 June 2020. For the subsequent period of 6 months, from 1 July 2020 to 31 December 2020, the total adjustment agreed will be 7.7 mb/d. It will be followed by a 5.8 mb/d adjustment for a period of 16 months, from 1 January 2021 to 30 April 2022.”

Vanguard

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