Nigeria’s economy may further run into trouble if OPEC+ decides to cut production in its next meeting which is scheduled to hold next week Wednesday.
This is because Nigeria has enough trouble on its hands when it comes to the issue of oil production. The country has not been meeting its production quota owing largely to lack of investment in the industry. This is further compounded by massive crude oil theft that has seen the amount of crude oil produced on daily basis plummeting to an abysmally low level. The little foreign exchange it is earnings are being wasted on fuel subsidy.
Crude oil is the main source of the country’s foreign exchange earnings and except it is given certain considerations it would be difficult for the country to meet its financial obligations both at home and abroad. Should it happen, her budget proposal for next year also has to be reworked to reflect the reality on ground. This may cause serious economic crisis for a country that is already bedeviled with a high inflation rate.
Already speculations are rife that at the next meeting of OPEC+ on Wednesday, a production cut is one of the things that top its agenda.
According to Reuters on Thursday, several major producers of the OPEC+ alliance have started talks about a potential oil production cut ahead of the regular monthly OPEC+ meeting on October 5, OPEC and OPEC+.
OPEC+ meets next Wednesday to discuss the market and fundamentals situation as oil prices have fallen below $90 per barrel, a level last seen just before the Russian invasion of Ukraine.
It is “likely” that the group will agree on a cut, a source at OPEC told Reuters.
At the previous meeting, OPEC+ reversed the 100,000-barrels-per-day increase for September and returned the October quota to the levels from August.
While the slight tweak in the group’s collective target is negligible for oil market balances, OPEC+ signaled readiness to intervene in the market at any time. The meeting in early September decided to “Request the Chairman to consider calling for an OPEC and non-OPEC Ministerial Meeting anytime to address market developments, if necessary.”
Earlier this week, Reuters sources familiar with Russian thinking said that
Russia was likely to propose at the next OPEC+ meeting that the group cut 1 million barrels per day (bpd) from the group’s collective output.
In reality, the cut would be much smaller, considering that many OPEC+ members, including Russia, are pumping well below their respective targets.
One of the latest estimates put the gap between the quota and actual output widening to a massive 3.58 million bpd in August.
At any rate, a large cut from OPEC+ next week would support oil prices, and there is growing consensus among analysts that a production cut is coming.
“We certainly see a significant chance that the producer group will opt for a substantial cut to try to signal that there is indeed an effective circuit breaker in the market,” Helima Croft, chief commodities strategist at RBC Capital Markets, said on Thursday, as carried by Bloomberg. The cut could be as much as 1 million bpd, according to Croft.
Olusola Bello with additional repors from Tsvetana Paraskova of Oilprice.com