The price of Brent, the global benchmark for crude oil, jumped on Monday, following announcements of voluntary production cuts by member nations of the Organisation of Petroleum Exporting Countries (OPEC), and its allies, jointly referred to as OPEC+. Oil price, which hovered around US$70/barrel a month ago, the lowest in about 15 months, suddenly jumped to US$84.93/barrel on Tuesday.
Saudi Arabia, Iraq, United Arab Emirates, Kuwait, Kazakhstan, Algeria, Oman, and Gabon agreed to a cut of 500,000bpd, 211,000bpd; 144,000bpd; 128,000; 78,000; 48,000, 40,000, 8,000bpd respectively starting from May till the end of 2023. This cut is in addition to the earlier announced voluntary adjustment by the Russian Federation of 500,000bpd, until the end of 2023, which will be from the average production levels as assessed by the secondary sources for the month of February 2023. This brings the total additional voluntary production adjustments by the above-mentioned countries to 1.66 million bpd.
Nigeria with a quota of 1.8 million barrels per day has been unable to meet its OPEC production quota which could be attributed to the persistent oil theft and pipeline vandalism in the Niger Delta. In the second half of last year, just before production fell to a historic 900,000 bpd, the government in collaboration with local security groups took steps to curb the menace. This and other holistic efforts by the NNPC have led to a significant increase in Nigeria’s production, which was up to 1.6 million bpd in March 2023, about 200,000 barrels short of our production quota.
While increasing crude oil prices should signal bright fortunes for the country, in reality, that has not been the case. Though the steady increase in crude oil production numbers might provide a bright outlook for crude oil revenues in the interim, the high subsidy regime the country currently operates continues to inhibit expected benefits from increasing oil prices. The Nigerian government has for decades subsidized Petrol Motor Spirit (PMS) with a huge chunk of the country’s expenditures going to subsidy payments. The government budgeted N3trn for subsidies in 2022 and plans to remove fuel subsidies in the second half of the year. We reiterate however that the complete removal of the fuel subsidies will likely be met by resistance from a badly impoverished populace, and we postulate that a gradual removal starting towards the end of the year may be the more likely process.
