Oil price

By Ediri Ejoh

Despite the rise in crude oil prices above $75 per barrel at the International market, there are indications that Nigeria crude oil production may have recorded a decline by 7,000  bpd of 1.48 million bpd in June against 1.55 million bpd in that of May.

This is despite the positive rise in the combine oil output from the Organisation of the Petroleum Exporting Countries for June.

The group, known as OPEC+, added 540,000 barrels per day of crude in June to a market hungry for oil as summer kicked off, according to the latest S&P Global Platts survey.

According to the report, Nigeria produced 1.48 million bpd in June, its lowest level since January, compared to 1.55 million bpd in May, the survey found.

Some of the country’s large oil fields, especially those in the Niger Delta like Bonny, Escravos, Brass River and Qua Iboe, were said to be pumping well below their full capacity due to either technical problems or maintenance.

“OPEC’s 13 members pumped 26.19 million bpd in June, up 480,000 bpd from May, mostly due to Saudi Arabia’s continued unwinding of its voluntary extra production cut.

“The group’s nine non-OPEC partners, led by Russia, produced 13.27 million bpd, a rise of 60,000 bpd from May.

Despite the production gains, higher quotas for the month meant OPEC+ compliance was at 110.16 per cent compared to 111.45 per cent in May, the survey found.

The coalition has added 970,000 bpd in the past two months, as parts of its plans to relax its output quotas to meet the growing demand for its oil.

But a bitter feud between emerging rivals Saudi Arabia and the UAE could put an end to that, with a deal to raise output by two million bpd between August and December in jeopardy, according to S&P Global Platts.

The report said the dispute, which a week of negotiations had so far failed to resolve, could cause the OPEC+ alliance to leave quotas flat after July, potentially squeezing an already tightening market through the rest of the summer.

However, experts of the industry, have expressed optimism in the petroleum industry as price of crude continues to see upward turn.

For President, Nigerian Association for Energy Economics, NAEE, Prof. Yinka Omorogbe, the urgent need to shift from crude may not have come at a better time.

She said, “First of all Nigeria has to move from its concentration on crude oil sales as the major source of revenue. We are also one of the world’s largest importers of products. These two factors create a wasteful tension, worsened by subsidy payments.

“Diversification is key and therefore the government should work on sound policy and legal frameworks that stimulate growth and activity in other sectors of the economy. A key pillar of these framework should be the imperative of domestic needs being prioritised so that we can truly develop.

“It should encourage and grow the private sector by creating an attractive investment environment for foreign and Nigerian investors, in all sectors. Without our domestic energy needs being met, and a strengthened private sector, we will continue to have huge development challenges.”

She, however, said, “The high price is good because the government gets more money for its crude, and bad because importers pay more for their products. Who wins?”
 
Also, a petroleum expert and analyst, Prof. Wumi Iledare, called for financial discipline from the part of the federal government as crude prices soars. He said, “The increase in crude oil prices at the International market is a good for any economy and for Nigeria, of course, more revenue is certainly good for the country.  I just hope it does not lead to fiscal irresponsibility.”
 
NNPC, LCCI raises concerns
 
 Meanwhile, the increasing global price which is seen as a plus to most oil- producing countries, may likely be a major concern in Nigeria, this is just as Mallam Mele Kyari , the Group Managing Director, Nigerian National Petroleum Corporation (NNPC) has repeatedly insisted that the rising crude oil prices in the international market  poses challenge.
 
According to the NNPC GMD, the comfort zone for the country globally is when the price falls around $58-$60, adding that anything above $70-$80 will create major distortions in the projection of the corporation which will add more problems to the company.
 
Kyari said NNPC will continue to battle the dilemma of shouldering the payment of petrol subsidy, which has reduced its contribution to the Federal Account Allocation Committee (FAAC) on two occasions.
 
In a chat with Vanguard, Mr. Muda Yusuf, Former Director General, Lagos Chamber of Commerce and Industry (LCCI), disclosed that rising crude oil price is a positive sign for the country. He added that this would increase the country’s revenue earning.
 
According to him, “As oil price increases, government’s revenue increases, this is because the country’s earning from crude oil is about 60 percent.

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There is a positive relationship in this direction. The increase of the revenue gives the Federal Government the opportunity to fund the budget and attend to infrastructural and other social issues. It reduces our fiscal deficit. 
 
“There is a positive correlation between crude oil price and reserve. It is positive on the part of foreign exchange earnings. This is because as crude oil price increases foreign exchange inflow also increases.  It also helps to beef up our foreign reserve”. 
 
“There is also a positive implication for the exchange rate which has been under pressure over a period of time. The dollar inflow arising from increase in crude oil price, the supply side of the foreign exchange market is always also impacted. This development will further strengthen the Naira.” 
 
On subsidy
 
He further noted that the current pump price of petrol is not sustainable under the rising crude oil prices, as the NNPC cannot continue to subsidize fuel consumption,  if crude prices continue to rise beyond this level.
 
He noted that the government would be under pressure to shift the pump price from N162 to around N350 or N400 per litre, while it is still battling with the engagement with labour unions and civil society groups. 
 
He said, “On the flip side because we import all our fuels including AGO, PMS Aviation fuel and others, this will affect prices at which we buy them locally. For Petrol PMS, because Government pays subsidy on every litre of this petroleum product , fuel subsidy cost will also increase thereby depleting what could have been a huge earnings from increasing oil price. 
 
“The daily amount payable for subsidy has increased, so crude oil cash flow is also flowing out through subsidy. The importation bill for fuel and the subsidy bill will both increase due to crude oil price increase. 
 
He further stated that “This would also amount to threat on energy cost in the country. Since the cost of diesel fuel has increased to about N280 per litre, this would also impact on the production cost of the manufacturing sector. As a result of the epileptic power situation in the country, most companies rely on Diesel to power their generators. 
 
“Although most of these fuels including Aviation Diesel and Kerosene have been deregulated, the prices are determined by the direction of crude oil in the global market. 
 
“Energy cost is increasing and this is also affecting operational and production cost”, he stated. Thus, Energy cost on the part of our members and other manufacturers has gone up to around 30 percent.  
 
“The hike in price of fuel will also affect the transportation sector. Public transportation will start witnessing increase in fare prices and this will affect every one including the poor and rich. 
 
“All the trucks carrying materials and other heavy duty will also be affected thereby having negative impact on the cost of goods and services including foods and other basic needs of the people. So it has inflationary effect on the point of increase in energy cost, electricity and transportation cost.” 
 
When asked about what can be saved amidst increasing crude oil price, he said, “Ideally we should at this period start making saving to beef up the buffer, but we already have huge Budget deficit and debt which needed to be serviced. 
 
He further disclosed that large chunk of the cash in-flow will go into servicing these debts, noting that, while it is possible for the country to save and still be servicing debt at the same time, NNPC’s under-recovery and subsidy on PMS will serve as major bottleneck for that to be achieved.

Vanguard News Nigeria

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