Nigeria to resist cuts to its oil output

Nigeria will resist any attempts to curb its oil production when it meets with OPEC and Russia later this month, posing a threat to the cartel’s efforts to cut global supplies and boost crude prices towards $60 a barrel.

Emmanuel Kachikwu, Nigeria’s minister of state for petroleum resources, told the Financial Times that the west African nation’s energy sector was still suffering from years of violent disruptions and needed more “recovery time” before joining a supply deal agreed last year between some of the world’s biggest oil producers. Mr Kachikwu, who represents Nigeria at OPEC meetings, said in an interview he would not consider reducing production until at least March next year, as it had not yet been proven that the country’s rebound in production would last. “We have a nine-month exemption period within which to come back to the table,” Mr Kachikwu said, referring to the decision to extend the near 2m barrel a day supply cut deal from June. “You need that timeframe to see if any recovery is sustainable.” His stance puts Nigeria on a potential collision course with other OPEC members as the country’s output has rebounded strongly in the past 12 months, blunting the effectiveness of a deal between 24 countries to shave almost 2% of global oil output.

Africa’s largest oil producer has seen its output jump from a low of 1.4m b/d a year ago to almost 1.9m b/d in August, according to consultants and analysts OPEC relies on to track members’ oil production. Nigeria’s own output numbers are lower. Both Nigeria and its conflict-ridden OPEC peer Libya were made exempt from the initial agreement reached late in 2016 as both countries’ oil sectors recovered after years of unrest that crippled the lifeblood of their economies. But higher than anticipated production from both countries has dulled the impact of the supply deal, as has resilient US shale production and poor adherence with the pact from participating members of OPEC such as Iraq and the UAE. A ministerial committee monitoring compliance with the deal, made up of officials from OPEC and those outside the cartel such as Russia, has said Nigeria would cap or curb its output once production stabilised at 1.8m b/d. But a timeline or framework to measure steady production and the country’s entry into any deal has never been specified. Pressure on Nigeria to reduce its crude production is expected to increase when it attends an informal meeting in Vienna later this month with delegations from Saudi Arabia and Russia, which have been leading the cuts effort.

Mr Kachikwu said while militant attacks in the resource-rich Niger Delta region had subsided, and output had rebounded from last year’s low, more time was necessary. “They should let us exhaust those nine months and see whether we have been able to establish stability,” he said. Alexander Novak, Russia’s energy minister, told the FT in July that volatile output from Nigeria and Libya was causing “uncertainty” among market participants. Industry analysts said both countries’ production was keeping a ceiling on prices. Global producers took co-ordinated action as the crude price downturn that had put acute strain on their economies entered its third year. Saudi Arabia has discussed a further extension in recent days with several oil producers and two OPEC delegates say Nigeria’s involvement is in focus.

For Mr Kachikwu, limits to price rises had mostly to do with robust US shale oil output. “OPEC’s big expectation that we would be able to hit $60 a barrel is not looking likely,” said Mr Kachikwu. “$60 is looking very, very tough right now if you look at the sort of numbers coming out from US shale,” he added Mr Kachikwu said Brent crude would likely stay close to $55 a barrel for the next year, with any further rises depending on a “well managed” OPEC output policy that ensured producers did not “pump unnecessarily.” He added that should US shale output continue to expand, prolonged output cuts would be “difficult” to keep up. “The earlier all of us get used to the fact [shale] is going to be there for a long time, the better,” said Mr Kachikwu.

Source: Anjli Raval for the Financial Times

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