Market News

AuthorEklavya Gupte     Newsdesk-Nigeria  EditorJonathan Fox 

HIGHLIGHTS

President Buhari asks OPEC to understand peculiar challenges

Growing dissent among OPEC members ahead of key meet

Nigeria in recession as economy reels from COVID-19 pandemic

London — Nigeria is the latest OPEC member to urge the producer group to consider the economic implications of steep production cuts on its members ahead of the OPEC+ formal meeting next week.

"On the peculiar challenges facing the country amid its large population and immense deficit in infrastructure, the president [Muhammadu Buhari] urged OPEC to consider the weight of the responsibility of the nation with 200 million poor people, with severe deficit in infrastructure when sharing oil production cuts," a spokesman from Nigeria's president's office said late Nov. 26.

This statement comes a few days after Africa's largest oil producer entered recession after its GDP fell for two consecutive quarters, as a fallout from the oil price crash and the coronavirus pandemic.

Nigeria's oil output has also fallen sharply in recent months, as it has had to make hefty cuts as part of its OPEC+ obligations, which has severely cut into its oil revenues.

Cracks resurfacing

The OPEC+ alliance, which will meet on Nov. 30 and Dec. 1 to formulate its output strategy for 2021, is showing signs of fracture, with some voices of dissent getting louder.

Cash-strapped Iraq is also losing patience with the group's "one size fits all" approach to production cuts.

And key Saudi ally UAE also may be considering a split from the group. The UAE has privately discussed whether OPEC membership is in its long-term interest, given the growing upstream ambitions of state oil company ADNOC.

These recent public grievances aired by its members are putting pressure on the 23-country alliance known as OPEC+.

In an unusual move, the joint ministerial monitoring committee overseeing the OPEC+ agreement will hold last-minute informal online talks on Nov. 28 prior to next week's meeting.

"Please note, given the exclusive nature of these informal consultations, these consultations will take place with Heads of Delegation of the JMMC only," OPEC Secretary General Mohammad Barkindo said in a letter seen by S&P Global Platts.

The JMCC is co-chaired by Prince Abdulaziz bin Salman and Russian deputy prime minister Alexander Novak. The JMMC comprises Russia, Saudi Arabia, the UAE, Algeria, Nigeria, Iraq, Venezuela and Kazakhstan.

OPEC+ is likely to extend its 7.7 million b/d production cut into next year. Uncertainty over demand in the coming months, exacerbated by a second wave of coronavirus infections and European lockdowns, has weighed on the market.

But crude prices have rallied recently, buoyed by a sharp demand recovery in China and India, along with positive news on the efficacy of COVID-19 vaccines.

Analysts expect an extension of current output cuts into 2021 as the most likely scenario. Under the current agreement the cut is due to fall to 5.8 million b/d from January, from the current level of 7.7 million b/d.

"If OPEC+ delays the tapering of cuts by three months, we estimate the oil market will continue to be undersupplied, albeit by a thin margin," Norway's' DNB said in a research note.

"The re-imposed lockdowns in Europe and sharply increasing Libyan oil production have led to a weaker oil market balance, and this is the focus of OPEC+," the note said. "The vaccine-driven oil price rally does not reflect tighter short-term fundamentals, and OPEC+ must continue to focus on bringing down still-inflated global oil inventories."

Agbami confusion

Some weeks ago Nigeria's OPEC officials were also asking for a change in the country's quota, with a permission to produce more.

Nigeria's compliance to the OPEC+ production cut deal hasn't always been up to scratch. But a key reason for this is the confusion over the country's ultra-light oil Agbami.

Nigeria's oil ministry insists Agbami is a condensate but international oil companies like Chevron and Equinor, which have equity in the Agbami deepwater oil field, classify it as a crude.

The output cuts by OPEC and its nine non-OPEC allies are focused on crude and not condensate.

Platts, one of the secondary sources that monitors compliance, includes Agbami in Nigeria's crude oil figure as it is marketed as a crude export blend and not a condensate by oil companies.