Members expectant as OPEC discusses production quota tomorrow
As countries such as Nigeria and Venezuela continue to take a hard knock from the decision of the Organisation of Petroleum Exporting Countries not to cut production at its meeting in November last year, industry experts said the 12-member oil cartel will maintain its stand tomorrow (Friday).
Nigeria, a member of the OPEC, has been hard hit as OPEC abandoned its traditional role of propping up prices through production cuts.
The decision by OPEC to fight for market share instead was premised on the belief that growing shale oil production from the United States would depress prices no matter what it did.
Aside from Nigeria, Venezuela, Algeria and Angola have also struggled while wealthier OPEC members such as Saudi Arabia and Kuwait ramp up production and lock down buyers in Asia.
The Director, Emerald Energy Institute, University of Port Harcourt, Prof. Wumi Iledare, told our correspondent in a telephone interview, “I don’t think they (OPEC) have changed the philosophy with respect to protecting their market share and not to cut production. I don’t expect OPEC to cut their production at all.”
Iledare however said it was in the interest of Nigeria if the price stayed low.
“Nigeria, historically speaking, has not been one of those supporting price cut. But it is actually in the interest of Nigeria for the price of crude oil not to be too high because if the price continues to be high, production of US shale oil will continue to rise,” he said.
The Head of Energy, Research, Ecobank Capital, Mr. Dolapo Oni, said OPEC decision to retain output at 30 million barrels per day since November had so far reduced the pace at which US shale was being produced, showing that the OPEC strategy had been effective.
“I expect OPEC to either retain its output level or further raise it to 30.5mmbpd. Countries like Nigeria clearly would like to see OPEC and more specifically, the Gulf countries in OPEC cut back their production but that is not likely to happen.”
This, he said, was because the Gulf countries were fighting for market share and saw any cut in output as loss of key market share as the customers would likely switch to other crude streams from Latin America or Russia etc to fill the gap.
He said this put countries like Nigeria and the rest of West Africa oil producers in a bind as it means they could face more revenue problems.
“The battle for market share in Asia is likely to continue to put pressure on cargoes out of the Atlantic basin and could extend the overhang Nigeria is currently facing,” Oni said.
He said the decision could also spark further decline in prices, with most traders already expecting the cartel to keep output levels unchanged.
“Nigeria needs to rethink its OPEC strategy. OPEC is doing something that is collectively good for oil producers like Nigeria. However, due to the structural problems with our economy, it has hit us badly, perhaps worse than most.
“Thus, Nigeria should drive a different position in OPEC, i.e. OPEC is supposed to have a safety net for members who have been worse hit by the stand-off. Loans from the richer and more comfortable members could be a way to start, while on the extreme end, OPEC could consider a way for members to jointly gain market share.”
A former Director of Research at OPEC, Chief Mike Olorunfemi, had at an interview last month, told our correspondent that he was not expecting OPEC to take any decision to reduce the volume of production so that the price could go up.
“I don’t see OPEC trying now to help the market. I don’t believe countries like Saudi Arabia and Kuwait will really want to reduce their production so as to encourage the price to rise because if they do that, they will be telling people who are investing in shale oil to continue to invest more and will displace OPEC oil the more.”
Venezuelan oil minister, Asdrubal Chavez, on Wednesday said world oil markets were oversupplied by between 2 million barrels per day and 2.5 million bpd, a glut triggered by US shale oil production growth which had pushed out imports of light crude from Algeria, Angola and Nigeria in particular and which international producing countries had failed to anticipate.
Chavez, speaking at OPEC’s international seminar in Vienna ahead of Friday’s ministerial meeting, said the shale-driven glut had promoted an “involuntary price war among brother countries” that were all looking to protect their market share, according to Platts.
Venezuela has been particularly affected by the oil price plunge that saw international benchmark Brent crude fall from $115 per barrel in mid-June last year to as low as $45.19 per barrel in mid-January this year.
It has also been particularly active in trying to coordinate joint action by key producers both inside and outside OPEC in hopes of boosting prices.
The Secretary General, OPEC, HE Abdalla El-Badri, said on Wednesday at the 6th OPEC International Seminar, that the challenge of maintaining the supply-demand balance and reaching price stability required the cooperation of major non-OPEC producers.
“We should remember what cooperation between OPEC and non-OPEC producers achieved back in the 1998-1999 crisis.”
[Punch]