…Analysts expect higher oil prices
The Organisation of Petroleum Exporting Countries and its allies, (OPEC+), on Wednesday agreed to slash its crude production target by two million barrels a day (bpd) from November, the biggest cut since the group reduced quotas by 9.7mn b/d at the start of the Covid-19 crisis in 2020.
The coalition has also agreed to extend its production cooperation agreement until the end of 2023.
By the action, Nigeria and other countries lagging in their production output will maintain their quota, while Saudi Arabia takes the largest cut. Indeed, 14 out of the 19 countries undershot their August quotas as Russia, Nigeria and Kazakhstan had the largest shortfalls.
As a result of crude theft, Nigeria’s production is presently below the 1.826mbpd quota assigned to it by the cartel.
The Nigerian National Petroleum Company Limited (NNPC) on Tuesday, disclosed that in its effort to fight rising crude oil theft, which has seen Nigeria’s average crude production fall to under one million barrels a day in August, it has so far shut down the operations of 395 illegal refineries.
NNPC Ltd Group CEO, Mele Kyari, in a briefing with the Senate ad hoc committee on oil theft in Nigeria, noted that other discoveries include an illegal connection of four kilometers route into the sea running from its major Forcados line, which he estimates has been around for nine years.
He also noted that crude theft by vandals reduced Nigeria’s oil production to around 1.2 million barrels per day from 1.8 million.
Yesterday’s decision — taken at the group’s first in-person meeting in Vienna since March 2020 — came against a backdrop of heightened concerns that an inflation-driven economic slowdown will weigh on global oil demand.
It was taken “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 said.
Capital Economics research group now expects global oil prices to rise from about $93 to $100 per barrel, with U.S. benchmark prices rising from $88 to $92. At the outset of Russia’s invasion of Ukraine, global oil prices had climbed to as much as $128.
“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,” Caroline Bain, a chief commodities analyst for Capital Economics, said in a note following the Wednesday announcement.
Oil ministers from the group have had to consider several competing challenges that threaten oil market stability. On the one hand, several oil-consuming economies face a potential recession on the back of rising inflation, fuelled by energy price hikes since Russia’s invasion of Ukraine.
On the other hand, supply constraints loom large, with limited spare crude production capacity within OPEC+ and elsewhere exacerbated by uncertainty over the impact of the EU’s upcoming embargo on Russian seaborne imports and price caps on Russian oil.
The 2mn b/d cut from November will take the collective output ceiling of the 19 countries participating in the deal to 40.1mn b/d, the lowest since April but still higher than their actual production in August.
Quota-bound members fell 3.58mn b/d below target in August, according to an average of secondary source estimates, with several of them hamstrung by dwindling spare capacity, underinvestment, infrastructure issues and, in the case of Russia, sanctions.
Besides the 2mn b/d quota cut and the deal extension, the group also agreed to reduce the frequency of its meetings. After the next ministerial meeting on December 4, ministers will meet every six months, in line with the normal schedule pre-pandemic. The group’s Joint Ministerial Monitoring Committee (JMMC) will meet every two months.
