Oil prices surge as OPEC cut output by 1.2m bpd; Nigeria excited

The Organization of Petroleum Exporting Countries, OPEC on Wednesday agreed to cut oil output by about 1.2 million barrels per day.

The cut represents about 4.5 percent of current production. 

The agreement is coming 8 years after the last agreed oil output cut in 2008.

Non-OPEC Russia will also join output reductions for the first time in 15 years to help the Organization of the Petroleum Exporting Countries prop up oil prices.

Analysts broadly expect the agreement to boost oil prices above $50 a barrel and keep them there. Prices have wavered between about $40 and $54 since the spring.

NIGERIA EXCITED, MAY BE BLIGHTED BY NIGER DELTA MILITANCY

Speaking on Bloomberg television yesterday morning before the decision was announced by OPEC on the new output cut, Kachikwu said Nigeria would be quite comfortable with the price of crude oil in the mid-$50s.

He also said he was not sure when the militancy affecting oil and gas production in the Niger Delta would end, even though the federal government was reportedly making some progress at stemming the destruction of oil and gas infrastructure in the region.

Kachikwu said Nigeria would welcome oil prices at between $54 and $56 per barrel, adding that if prices got to $60 a barrel, he would consider it a favour to the country.

“Mid-$50s will be fine, but if we have a Santa Clause day, then $60 per barrel. 

“But frankly, we are looking at mid-$50s,” Kachikwu said in response to a question on what price level Nigeria would consider comfortable.

He also said the issues in the Niger Delta could remain a potential challenge to the success of the government’s recently launched policy reforms for the oil and gas sector.

According to him, other potential challenges were fairly within the control of the government but not the Niger Delta issue.

The minister said despite the progress made so far in attempts to address the Niger Delta militancy, he could not predict an end to the attacks.

“I think the Niger Delta issue is a major problem because you simply can’t get a final handle on it until it is resolved and you will never know when it will be resolved,” he stated.

He further explained: “We have made a lot of progress on that, production is up 1.9mbpd to 1.95mbpd, from the lows of 1.4mbpd. 

“Militancy attacks are less, an average of one every month, as opposed to five to six every week when they first started early in the year.

“We still have sporadic attacks which simply mean that we still have not sufficiently addressed all the issues that need to be addressed;

“Not just by myself but also the Minister of the Niger Delta and other ministers that are working feverishly to try and get the convergence on some of the models that we are trying to deploy in the Niger Delta.”

OPEC produces a third of global oil, or around 33.6 million barrels per day, and under the Wednesday deal it would reduce output by around 1.2 million bpd from January 2017.

Saudi Arabia will take the lion’s share of cuts by reducing output by almost 0.5 million bpd to 10.06 million bpd. Its Gulf OPEC allies – the United Arab Emirates, Kuwait and Qatar – would cut by a total 0.3 million bpd.

Iraq, which had insisted on higher output quotas to fund its fight against Islamic State militants, unexpectedly agreed to reduce production – by 0.2 million bpd.

OPEC president Qatar said non-OPEC producers had agreed to reduce output by a further 0.6 million bpd, of which Russia would contribute some 0.3 million.

A combined output reduction of 1.8 million bpd by OPEC and non-OPEC represents almost 2 percent of global output and would help the market clear a stocks overhang, which had sent prices crashing from levels as high as $115 a barrel seen in mid-2014.

Top oil exporter Saudi Arabia faces the unenviable tasks of policing cartel members and keeping crude prices within a range that will relieve pressure on oil-producing countries’ economies, but which will dissuade non-OPEC producers from increasing output.

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