OPEC+ cuts oil production quota by 2 million bpd for November, biggest since 2020

Oredola Adeola

The Organization of the Petroleum Exporting Countries (OPEC) and its allies popularly called the OPEC+ alliance have announced a two(2) million barrels a day cut in November production quotas, claiming “uncertainty that surrounds the global economy and oil market outlooks”, consequently driving oil and gas prices up after weeks of a downward trend.

This was the major outcome of the 45th meeting of the Joint Ministerial Monitoring Committee and the 33rd OPEC and Non-OPEC Ministerial Meeting which took place in person at the OPEC Secretariat in Vienna, Austria, on Wednesday, 5 October 2022.

EnergyDay gathered that the cut is the oil cartel’s first large reduction in output since the early days  2020 health crisis. The OPEC+ have therefore curbed supply in an already tight market despite pressure from the United States and others to pump more.

The meeting attended by oil ministers from the 24 OPEC+ oil-producing countries, including Russia, is coming at a time when the global community is already battling soaring energy costs including a record-high increase in natural gas prices in Europe.

While the decision of the OPEC+ is majorly aimed at bolstering oil prices in their favour, critics of the move of the oil cartel revealed that this new development has raised already growing concerns among consumers in Europe who will be hit hard by high energy bills as global demand for fuel rises.

In a statement released shortly after the meeting, OPEC+ said was based on the need to enhance the long-term guidance for the oil market, and in line with the successful approach of being proactive, and pre-emptive.

The cut has been consistently adopted by OPEC and non-OPEC Participating Countries in the Declaration of Cooperation, the Participating Countries decided to reaffirm the decision of the 10th OPEC and non-OPEC Ministerial Meeting on 12 April 2020 and further endorsed it in subsequent meetings, including the 19th OPEC and non-OPEC Ministerial Meeting on 18 July 2021.

They also extend the duration of the Declaration of Cooperation until 31 December 2023 and further adjust downward the overall production by 2 mb/d from the August 2022 required production levels, starting November 2022 for OPEC and non-OPEC Participating Countries.

OPEC+ reconfirm the baseline adjustment approved at the 19th OPEC and non-OPEC Ministerial Meeting and also adjusted the frequency of the monthly meetings to become every two months for the Joint Ministerial Monitoring Committee (JMMC).

By implication, the cartel will hold the OPEC and non-OPEC Ministerial Meeting (ONOMM) every six months in accordance with the ordinary OPEC scheduled conference.

They will also grant the JMMC the authority to hold additional meetings or to request an OPEC and non-OPEC Ministerial Meeting at any time to address market developments if necessary.

They have also extended the compensation period to 31 March 2023, requesting that the compensation plans should be submitted in accordance with the statement of the 15th OPEC and non-OPEC Ministerial Meeting.

The OPEC+ Ministers also reiterated the critical importance of adhering to full conformity, and have therefore agreed to hold the 34th OPEC and non-OPEC Ministerial Meeting on 4 December 2022.

IMPLICATION OF SUPPLY CUT ON NIGERIA

The cut in November production quota is expected to benefit certain oil producers including Saudi and Russia, leaving Nigeria in battle with its already battered economy.

The implication of the cut is that with high prices, Nigeria will pay more for the subsidy of Petroleum Motor Spirit(PMS) also known as petrol, thereby jerking up the financial burden on the 2022 budget.

The amount that the country is paying on subsidy this year is almost around  N6.72 trillion equivalent to 30% of Nigeria’s total expenditure of N17.126 trillion, while the plan is already in the pipeline to spend another N4 trillion to service petrol subsidy between January and June 2023, when the subsidy regime is expected to be totally removed.

Nigeria has been unable to meet its OPEC production quota allocated to it by as much as 800,000 barrels per day, data from the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) for August.

The Nigerian Government has also held the strong position that India and China which are Nigeria’s major oil buyers may find alternatives if the price skyrockets.

On the local scene, the cut which will jerk up global oil prices is expected to negatively affect Nigeria’s revenue, as this would amount to the need to pay more on petrol subsidy.

Mallam Mele Kyari, Group Chief Executive Officer of the Nigerian National Petroleum Company Limited (NNPCL),  had in the past disclosed that the country was most comfortable with an oil price of between $50 to $60.

Nigeria’s crude oil production hit a record low of 972,394 barrels per day in August, compared to the July 2022 production of 1.083 million barrels per day, due to the downward spiral in the country’s capacity to produce sufficient oil to boost its desperately needed foreign exchange.

This is happening even at a time when the commodity has continued to hover around a rarely seen price of $100.

The decrease occurred despite FG’s assurances of strict measures against persistent oil theft, which has defied all available solutions including the most recent handing over of an N4 billion monthly surveillance contract to ex-militant, Government Ekpemupolo, popularly known as Tompolo.

This is also even after the deployment of security personnel in the Niger Delta and the real-time monitoring of activities around the pipelines by the NNPCL.

In addition, the national oil firm has introduced the whistle-blower strategy as well as the

The federal government has variously blamed massive oil theft, vandalism of major assets, dilapidated infrastructure as well as declining upstream investment for its inability to drill more of the commodity.

IMPACT OF CUT ON US ECONOMY

The decision of OPEC+ immediately led to a more than 2% increase in Brent crude and WTI prices. This also goes directly against the United States, President Biden’s administration’s attempts to lobby Saudi Arabia for higher production to bring prices down.

Experts are worried that the cut could lead to a dramatic price spike, adding that decision to cut production headed into winter in an energy crisis could lead to an increase in prices at the gas pump.

The OPEC+ including Saudi and Russia by this decision have deliberately restricted oil supplies in a deliberate attempt to influence a rise in oil prices.

Analysts have urged President Biden to open the Alaska pipeline up and also mobilise oil production in energy-rich Oklahoma with the specific aim of solving the energy crisis.