Nigeria To Keep Its Quota As OPEC Lowers Its Crude Production Goal By 2 mbpd
Analysts anticipate rising oil costs.
The Organization of Petroleum Exporting Countries and its allies, or OPEC+, decided yesterday to reduce their goal for crude production by two million barrels per day (bpd) starting in November. This is the biggest reduction since the group’s 9.7 million b/d quota reduction at the beginning of the Covid-19 crisis in 2020.
A further extension of the coalition’s production cooperation agreement through the end of 2023 has been agreed upon.
By taking this measure, Saudi Arabia will take the worst hit while Saudi Arabia and other nations with low manufacturing capacity would keep their quotas. In fact, 14 of the 19 nations fell short of their August quotas, with the worst gaps occurring in Russia, Nigeria, and Kazakhstan.
Nigeria’s production currently falls short of the 1.826 mbpd quota that the cartel gave it due to oil theft.
The Nigerian National Petroleum Company Limited (NNPC) revealed on Tuesday that it has so far halted the operations of 395 illegal refineries as part of its effort to combat rising crude oil theft, which has caused Nigeria’s average crude production to fall to under one million barrels per day in August.
In a briefing on oil theft in Nigeria given to the Senate ad hoc committee, NNPC Ltd Group CEO Mele Kyari mentioned that additional discoveries include an illicit connection that ran four kilometers into the sea from its main Forcados line and that he believes had been in place for nine years.
He added that criminals’ theft of crude caused Nigeria’s oil production to fall from 1.8 million barrels per day to about 1.2 million.
The decision was made yesterday at the group’s first in-person meeting since March 2020 in Vienna, against the backdrop of increased worries that a slowdown in the global economy brought on by inflation could reduce demand for oil.
The action was agreed upon “in light of the uncertainty that surrounds the global economy and oil market outlooks, and the need to enhance the long-term guidance for the oil market,” the OPEC Secretariat stated
Global oil prices are now anticipated to increase from roughly $93 to $100 per barrel, with U.S. benchmark prices increasing from $88 to $92. The price of oil had risen to as much as $128 a barrel globally at the time of Russia’s invasion of Ukraine.
“We had always expected supply growth to slow later this year and into 2023, but this latest OPEC+ action has reinforced our view that prices will end the year a little higher,”
Following the announcement on Wednesday, Capital Economics’ principal commodities economist, Caroline Bain, stated in a note.
The group’s oil ministers have had to weigh a number of conflicting issues that jeopardize the stability of the oil market. On the one hand, a number of economies that rely on oil are in risk of entering a recession as a result of rising inflation brought on by increases in energy costs since Russia’s invasion of Ukraine.
The uncertainty surrounding the effects of the upcoming EU embargo on Russian seaborne imports and price caps on Russian oil, on the other hand, have a significant impact on supply constraints. Limited spare crude production capacity within OPEC+ and elsewhere is made worse by these factors.
The collective output ceiling of the 19 participating countries will drop by 2 million b/d from November to 40.1 million b/d, the lowest level since April but still higher than their actual production in August.
An average of estimates from secondary sources shows that quota-bound members fell 3.58 million b/d short of target in August, with several of them constrained by declining spare capacity, underinvestment, infrastructure problems, and, in the case of Russia, sanctions.
Along with extending the pact and reducing the quota by 2 million b/d, the group also decided to hold fewer meetings. Following the December 4 ministerial meeting, meetings will be held every six months, as was customary prior to the pandemic. Every two months, the Joint Ministerial Monitoring Committee (JMMC) of the group will meet.