…Nigeria may get some relief
After resisting pressure from the United States to increase production level to mitigate the continuous upward movement of prices of crude oil in the global market, OPEC+ decided on Thursday to ramp up its monthly oil production increase to nearly 650,000 barrels per day (bpd) .
Hopefully, if this happens, Nigeria might get some relief in terms of the cost of fuel subsidy which has literarily wiped out whatever gains the country might be making as revenue from increased crude oil prices.
The subsidy payment has already hit N6 trillion and this is dislocating the economy of the country.
This is because the group is looking to compensate for falling production in its key member Russia amid expectations of strong fuel demand this summer.
In another super-short meeting, also, on Thursday, the ministers of the alliance agreed to boost the monthly production increases more than the usual 432,000 bpd, accepting the reomcmendation of the Joint Ministerial Monitoring Committee, which had met earlier in the day.
“The Meeting noted the most recent reopening from lockdowns in major global economic centers. It further noted that global refinery intake is expected to increase after seasonal maintenance,” OPEC said after the OPEC+ ministerial meeting ended.
The key decision of the meeting was to “Advance the planned overall production adjustment for the month of September and redistribute equally the 0.432 mb/d production increase over the months of July and August 2022. Therefore, July production will be adjusted upward by 0.648 mb/d.”
Under the production table for July provided by OPEC, Saudi Arabia, and Russia each have a quota of 10.833 million bpd next month, while the overall OPEC+ production quota is 43.206 million BPD.
Russia, however, is struggling with shut-in wells and production declines because of the Western sanctions over Putin’s war in Ukraine. As of April, Russian production was already estimated to be around 1 million bpd below its OPEC+ quota.
Within OPEC+, only Saudi Arabia, the United Arab Emirates (UAE), and Iraq to some extent, are believed to have the spare capacity to boost production. Nearly all other members of the alliance have been struggling to meet their quotas even at the 400,000-bpd monthly production hike for OPEC+. At 650,000 bpd, it will be the Saudis and the UAE that will have to step up to compensate for others.
Following the OPEC+ decision, oil prices erased earlier losses and were trading slightly higher at 9:55 a.m. EST, suggesting that the market doesn’t see the additional barrels as enough to offset supply losses from Russia, especially if most OPEC+ producers continue to fail to meet their quotas. The large increases for Saudi Arabia and the UAE also shift the focus again on shrinking global spare capacity, which is mostly in those two OPEC members.
However, crude oil prices rose further after the Energy Information Administration reported on Thursday an inventory draw of 5.1 million barrels for the week to May 27.
This compared with a draw of 1 million barrels for the previous week.
At 414.7 million barrels, U.S. crude oil inventories are some 15 percent below the five-year average for this time of the year.
In gasoline, the EIA estimated an inventory draw of 700,000 barrels for the week to May 27, which compared with a decline of half a million barrels for the previous week.
Gasoline production went up last week, averaging 10 million barrels daily, which compared with 9.4 million bpd a week earlier.
In middle distillates, the authority estimated an inventory decline of 500,000 barrels for the week to May 27, which compared with a build of 1.8 million barrels for the previous week.
Middle distillate production averaged 5 million bpd last week, compared with 5.1 million barrels daily a week earlier.
Refinery runs averaged 16 million barrels daily, with the average utilization rate at over 93 percent. Refinery shutdowns over the last two years have strained existing refining capacity, with the industry warning this utilization rate cannot be sustained for long periods of time.
The fuel squeeze might yet get worse as summer season kicks in across the northern hemisphere while Russian fuel supply abroad shrinks because of the latest wave of sanctions from the EU.
“The crude oil price is $120 per barrel but the product price — what you and I pay for petrol and diesel — is much, much higher. The overarching theme is the lack of investment,” Amrita Sen from Energy Aspects told the FT this week.
“We are in this for the long haul: potentially a decade,” the analyst added.
olusola Bello with additional reports