Oil prices decline despite OPEC+ production cut, as Chinese refiners seek cheaper alternatives from Nigeria, Russia

Oredola Adeola

The announcement of crude oil output cut of around 800,000 bpd by Organization of the Petroleum Exporting Countries (OPEC) and its allies -OPEC+, has failed to yield its expected result, as the price of Brent crude and West Texas Intermediate (WTI) declined to $75.48 per barrel and $70.80/b on Tuesday after rising to $76.71/b and $72.15/b respectively on Monday.

Brent crude added some $2.60 per barrel and WTI jumped by over $3 per barrel on Monday from $76.13/b and $71.74/b respectively on Friday, June 2, 2023.

EnergyDay gathered that on Sunday, June 4, 2023, during its 35th Joint Ministerial Monitoring Committee (JMMC) meeting held in Vienna, Austria, the oil cartel agreed to reduce overall production targets from January 2024 until 31 December 2024, by a further 1.4 million bpd to a combined 40.46 million bpd.

The cartel in April agreed to total volume of cut to 3.66 million, which was made up of 2 million bpd cut agreed last year from August 2022 production levels, and a further 1.66 million bpd of voluntary cuts from nine OPEC+ countries, translating to 3.7 percent of global demand.

During the Sunday meeting, nine countries consisting of Nigeria, Sudan, Brunel, Congo, Equatorial Guinea, Azerbaijan, Malaysia, Angola and Russia, that also participated in the meeting, agreed to an additional voluntary production cut from July, which resulted in an even lower target of 38.81 million bpd.

Russia, Nigeria, and Angola’s production quotas were reduced by the cartels to bring them in line with declining production levels.

The production cut by the nine countries was extended from July to the end of 2024.

Saudi Arabia also unilaterally pledged further production cuts lower to 9 million b/d in July, below its normal output range.

Nigeria’s production quota was lowered to 1.38 million barrels per day after many months of struggling to attain its 1.83 million bpd previous quota.  The new quota was pegged at the country’s highest production level attained over the last six months.

Meanwhile, the global oil market trends on Tuesday showed that the decision of Saudi Arabia to lower production cuts and its plan to increase its official selling prices for Asia buyers, prompted Chinese crude oil refiners to seek cheaper alternatives from Nigeria, Russia, and Iran.

Analysts said that traders were unconvinced about the importance of any further cuts from OPEC+ as worry about the state of the global economy prevails.

IMPACT OF OPEC OUTPUT QUOTA CUT ON NIGERIA

Nigeria’s oil output averaged 998,602 bpd in April 2023, declining from 1.2 million bpd  produced in March, 2023.

Mele Kyari, the Group Chief Executive Officer of the Nigerian National Petroleum Company Limited (NNPCL) in a recent interview, hinted that the country’s production will reach 1.8 million bpd by July 2023, and 2 million bpd by December 2023.

In what looks like a double jeopardy for Nigeria, the global crude oil prices have continued to decline below $75 /b for almost two months, which was the country’s crude oil price benchmark, while the new OPEC’ output quota is now also below the crude oil production benchmark pegged at 1.69 million bpd.

President Bola Tinubu has also promised to increase Nigeria’s oil production to 4million bpd.  In a recent meeting with the Service Chiefs and heads of security and intelligence agencies last week, the President ordered the military to “crush” perpetrators of oil theft, saying his administration will not tolerate the menace.

He insisted that under his watch, insecurity would not bring Nigeria to her knees while other countries record achievements in key sectors of their economies.

The decision of the new Nigeria President to redouble the efforts of the security agencies, especially in the oil-producing communities has been described as one of the major signals needed to restore the country’s crude oil output.

It is therefore not clear if the new administration will agree to OPEC’s out cut when its security measure starts yielding positive results before the end of 2024.