Challenges loom for Nigeria as OPEC may cut 500,000bpd

There are indications that Organisation of Petroleum Exporting Countries (OPEC), and its allies, especially Russia, will further cut oil supply by 500,000 barrels per day (bpd), a situation that would worsen economic realities in Nigeria.

In the proposed Nigeria’s 2020 budget is predicated on 2.18 million bpd at a price of $57 per barrel, while the exchange rate is expected to remain N305/$1.

Dropping by about $10 due to the outbreak of Coronavirus in China, Brent yesterday stood at $54.76, falling below Nigeria’s expectation in the face of looming further cut in Nigeria’s OPEC quota, which last stood at 1.774 million barrels per day (bpd).

Although OPEC and non-OPEC panel called the Joint Technical Committee (JTC), which is ending today, the cartel is reportedly looking to hold emergency ministerial meeting on February 14. It had earlier agreed with partners to cut output further by 500,000bpd from January to March 2020. This is different from the previous cut of 1.2 million bpd already agreed.

Stakeholders, especially oil market analysts and economists had told The Guardian that current development is capable of leading Nigeria’s economy into another recession and shortage of foreign exchange, given that the nation’s foreign reserve has depleted to about $40.95 billion.

In December last year, Nigeria’s crude oil production fell to 1.57 million bpd day, a development which is far below budget projection and indeed, OPEC quota for the country.

While the aggregate revenue available to fund the 2020 budget is projected at N8.155 trillion (7 per cent or N561.2 billion more than the 2019 budget of N7.59 trillion), nothing less than N7.602trillion was expected to come from oil revenue.

The coronavirus outbreak in China could cut oil demand by more than 250,000bpd in the first quarter, Bloomberg quoted analysts and traders as saying.

Iran’s oil minister, Bijan Zanganeh, had on Monday said: “The oil market is under pressure and prices have dropped to under $60 a barrel and efforts must be made to balance it.”

Iraq’s oil ministry spokesman Assem Jihad had also told AFP that “Depending on the needs of the market and how it’s been affected by the coronavirus, will a cut be necessary? This is being discussed as the technical reports are presented.

“The technical committees are discussing the recommendations, which they will elevate to their ministers. Any further cut to outputs would only be announced in a ministerial meeting.”