By Udeme Akpan & Bestman Michael
The Organisation of Petroleum Exporting Countries, OPEC, and non-OPEC Ministers, popularly known as OPEC+, Sunday, increased the output of countries involved in the Declaration of Cooperation, DoC, including Nigeria.
The decision, which has authorized the nation to produce 1.829 million barrels per day, mb/d from 2022, was taken at the just-concluded 19th OPEC and non-OPEC Ministerial Meeting (ONOMM), held via videoconference, as a strategy to achieving stability in the global market.
Previous output cut OPEC+ had in 2020 cut output by 10 million barrels per day, mb/d in order to remove huge stocks from the volatile market, which became a reality following the outbreak of the Coronavirus pandemic, characterized by lockdown, low demand and equally low oil prices.
Market fundamentalsBut after some months of an output cut, OPEC+ declared that, “the Meeting noted the ongoing strengthening of market fundamentals, with oil demand showing clear signs of improvement and OECD stocks falling, as the economic recovery continued in most parts of the world with the help of accelerating vaccination programmes.
“The Meeting welcomed the positive performance of Participating Countries in the Declaration of Cooperation (DoC).
“Overall conformity to the production adjustments was 113 per cent in June (including Mexico), reinforcing the trend of high conformity by Participating Countries.” New decisions.
It also stated: “In view of current oil market fundamentals and the consensus on its outlook, the Meeting resolved to reaffirm the Framework of the Declaration of Cooperation, signed on 10 December 2016 and further endorsed in subsequent meetings, including on 12 April 2020.
“Extend the decision of the 10th OPEC and non-OPEC Ministerial Meeting (April 2020) until the 31st of December 2022.
“Adjust upward their overall production by 0.4 mb/d on a monthly basis starting August 2021 until phasing out the 5.8 mb/d production adjustment, and in December 2021 assess market developments and Participating Countries’ performance.
“Continue to adhere to the mechanism to hold monthly OPEC and non-OPEC Ministerial Meetings for the entire duration of the Declaration of Cooperation, to assess market conditions and decide on production level adjustments for the following month, endeavouring to end production adjustments by the end of September 2022, subject to market conditions.
“Adjust, effective 1st of May 2022, the baseline for the calculations of the production adjustments.
“Reiterate the critical importance of adhering to full conformity and taking advantage of the extension of the compensation period until the end of September 2021.”
Consequently, Nigeria is expected to produce 1.829 mb/d, excluding condensate, indicating an increase of 30.6 per cent, against its current 1.4 mb/d output.
The output of other countries, including OPEC and non-OPEC, would also witness a significant increase during the period.
However, in a telephone interview with Energy Vanguard, Prof. Omowumi Iledare, Ghana National Petroleum Corporation (GNPC) Professorial Chair in Oil and Gas Economics and Management, Institute for Oil and Gas Studies, University of Cape Coast, Ghana, said: “Nigeria has always has enjoyed the goodwill of OPEC. For years, the production quota allocation to Nigeria has always been generous, judging from shares of proved reserves and capacity.
“1.8 mb/d is close to the expected production in the 2022 budget. If interpreted correctly, the host community development provisions in the Petroleum Industry Bill, PIB, would help to meet up the quota.
“Similarly, a Port Harcourt-based energy analyst, Dr Bala Zaka, said: “OPEC+ had slashed the output of oil producers stabilize the market when the impact of the Coronavirus pandemic led to low demand.
“Now that the market has shown strong or positive fundamentals, it makes sense to open the tap gradually.”
Meanwhile, the price of Bonny Light, Nigeria’s premium oil grade, which had previously risen to over $75, hovered at $74.16 per barrel on July 19, 2021.
This showed over $34 in excess of the $40 per barrel benchmark of Nigeria’s 2021 budget, which was also benchmarked on 1.8 mb/d, including condensate.
Nevertheless, in its July 2021 Monthly Oil Market Report, obtained by Energy Vanguard, OPEC expects the market to remain stable in the coming months.
Specifically, the organization, stated: “The 1Q21 was revised lower, amid slower than anticipated demand in the Organisation for Economic Co-operation and Development, OECD, consuming countries.
“This was counterbalanced by better-than-expected data from OECD Americas in 2Q21, which is now projected to last through the 3Q21. Solid expectations exist for global economic growth in 2022.
“These include improved containment of COVID-19, particularly in emerging and developing countries, which are forecast to spur oil demand to reach pre-pandemic levels in 2022.”