Funding for Nigeria’s 2018 budget may soon receive a fresh boost as the Organisation of Petroleum Exporting Countries (OPEC) and non-OPEC producers led by Russia agreed on Thursday to extend oil output cuts until the end of 2018.
The decision is to assist the cartel to finish clearing a global glut of crude while signalling a possible early exit from the deal if the market overheats.
OPEC also decided to cap the output of Nigeria and Libya at 2017 levels without deciding on figures. Both countries have been previously exempt from cuts due to unrest and lower-than-normal production.
The decision of OPEC to allow Nigeria continue to enjoy production cut exemption is expected to provide a soft landing for its N8.6 trillion 2018 budget, which represents an increase of 16 percent from the 2017 budget.
Prior to yesterday’s meeting in Vienna, stakeholders have expressed concern that should OPEC decide to suspend the exemption by March 2018, funding of the 2018 budget may run into murky waters as more OPEC members will ramp production by pumping more oil into the market, thereby crashing oil prices, currently hovers around $60 per barrel.
The Federal Government in its 2018 budget proposal had put oil production at 2.3 million barrels per day (bpd) with a price benchmark of $45.
Commenting on the extension granted to Nigeria till end of 2018, Chairman of Petroleum Technology Association (PETAN), Mr. Bank Anthony Okoroafor, said the decision remained a welcome development as low oil prices led to several contract cancellation and deferment for the better part of 2017.
He said the extension granted to Nigeria by OPEC may not be unconnected with the series of setback the country suffered in 2017, due to attacks on oil facilities, which left production to an all-time low of 800,000 barrels per day(bpd).
The PETAN chairman lamented that the disruptions in oil production led to a loss of about $66 million per day, advising that the Federal Government should endeavour to implement the Memorandum of understanding (MoU) signed with the Niger Delta region in order to have uninterrupted oil production in the years ahead.
Iranian Oil Minister Bijan Zanganeh told reporters the OPEC agreed to extend the cuts by nine months until the end of 2018, as largely anticipated by the market.
Russia, which this year reduced production significantly with OPEC for the first time, has been pushing for a clear message on how to exit the cuts so the market does not flip into a deficit too soon, prices don’t rally too fast and rival U.S. shale firms don’t boost output further.
Russia needs much lower oil prices to balance its budget than OPEC’s leader Saudi Arabia, which is preparing a stock market listing for national energy champion Aramco next year and would hence benefit from pricier crude.
The producers’ current deal, under which they are cutting supply by about 1.8 million barrels per day in an effort to boost oil prices, expires in March.
The OPEC meeting was followed by talks with the non-OPEC producers.
A delegate told Reuters non-OPEC had agreed to extend the cuts in tandem with OPEC until the end of 2018.
Before the meetings, Saudi Energy Minister Khalid al-Falih, said it was premature to talk about exiting the cuts at least for a couple of quarters and added that OPEC would examine progress at its next regular meeting in June.
“When we get to an exit, we are going to do it very gradually … to make sure we don’t shock the market,” he said.
The Iraqi, Iranian and Angolan oil ministers also said before Thursday’s meetings that a review of the deal was possible in June in case the market became too tight.
Zanganeh said later no such debate had taken place at the OPEC meeting. However, a draft OPEC communique said the duration would be reviewed in June based on fundamentals.
“We will review the market situation and needs, and whether to keep the same level of cut or gradually decrease or increase it,” one delegate said.
International benchmark Brent crude rose around 0.5 percent on Thursday to trade above $63 per barrel.
With oil prices rising above $60, Russia has expressed concerns that an extension for the whole of 2018 could prompt a spike in crude production in the United States, which is not participating in the deal.
“If producers in the U.S. increase their rig count over the next few months due to higher prices then I expect another price collapse by the end of 2018,” said Scott Sheffield, executive chairman of Pioneer Natural Resources Co, one of the largest producers in the Permian Basin of Texas and New Mexico, the largest U.S. oilfield.