March 1, 2024

OPEC may need to cut again as Nigeria, other fragile members experience unexpected recovery, Citi says

OPEC may need to cut again as Nigeria, and other fragile members experience unexpected recovery, Citi says

Oredola Adeola


Nigeria and four other troubled nations that are core members of the Organization of the Petroleum Exporting Countries (OPEC) have experienced unexpected growth in oil supply, which is likely to force the cartel to consider further production cuts, according to Citigroup Inc.


Ed Morse, Citigroup’s head of commodities research, said in an interview with Bloomberg on Thursday.


According to him, Nigeria has improved security in its restive oil-rich Niger Delta region.


Citigroup’s head of commodities research said, “The “fragile five” of Iran, Iraq, Libya, Nigeria and Venezuela — which have struggled with output losses and disruptions for the past few years — will add roughly 900,000 barrels a day of production this year and at least the same in 2024, the bank estimates.


“That’s enough to satisfy coming growth in oil demand, it said.


Morse said, “All of a sudden, they are sources of growth, and they will be sources of growth for five, four years — or maybe even longer in the case of Iraq and Venezuela.


“It strikes us that the core OPEC+ countries have a problem on their hands.” Morse further revealed that “The five nations are all showing positive signs of supply recovery, while growth in oil demand will be constrained by fading expansion in China.


“Iranian output has recovered as it sends a flood of exports to China while engaging in tentative diplomacy with the US.


“Iraq may restore supplies when it reaches an agreement on a shuttered pipeline to Turkey and also add capacity.  Venezuela is in talks with Washington on easing sanctions, and even Libya, long wracked by instability, has potential for expansion.


“As a result, OPEC leader Saudi Arabia and its Persian Gulf allies — which have slashed production this year to shore up crude prices — may face pressure to cut output further, Morse said.


“The kingdom has already curbed supplies to a two-year low near 9 million barrels a day. It’ll be a big problem.


“I think they’ll have to cut, and I don’t know how easy it is for them to do that,” Morse said.


EnergyDay’s check showed that the military and other security operatives have been working to improve security and clamp down on illegal crude oil thieves and vandals in the Niger Delta region.  This has led to a significant reduction in oil theft in the area.


Despite being Africa’s largest oil and gas producer, Nigeria has faced challenges such as oil theft and infrastructure vandalism, leading to a decline in production.


Consequently, President Bola Tinubu has also expressed his commitment to increasing crude oil output in Nigeria.


This is also important because Nigeria has over the years lost significant amounts of oil production to theft, with estimates suggesting that the country was losing 400,000 barrels per day of oil production to theft as of July 2022.


The growth of illegal refining in the Niger Delta is not simply due to abundant supply but also unmet local demand.


The level of vandalism and theft in the Niger Delta has largely faded from view significantly since the inauguration of President Tinubu’s administration, however, it has not receded so much as projected by the government.


The recent appointment of the Minister of State (Gas) and Minister of State (Crude Oil) in Nigeria indicates the new government’s commitment, signaling a renewed focus on addressing these challenges and boosting crude oil production to enhance revenue generation for the country.


Shell Petroleum Development Company (SPDC) in August also resumed loading on Nigeria’s Forcados crude oil after a months-long outage over a pipeline leak at the export terminal.


Exports from Forcados, which was scheduled to ship 220,000 barrels per day (bpd) in July, were halted on the evening of July 12 after workers saw fumes near a single buoy mooring where oil was being loaded onto a vessel.


SPDC in March 2023 lifted the force majeure on its oil cargo from the 1.25 million barrels of oil per day capacity terminal after a 12 month hiatus.