With oil markets hemorrhaging for more than two-and-a-half years amid the worst oil market in arguably a generation, two weeks ago it appeared that Russia and OPEC de facto leader Saudi Arabia, the world’s top two oil producers, could possibly and finally agree on an oil production cap at a planned informal meeting of oil producers to be held on the sidelines of an energy forum in Algiers in a little more than a week.
Moscow and Riyadh, both reeling from prolonged low oil prices, agreed to agree that something had to be done to address the supply glut and plunge in global oil prices of around 60% since mid-2014.
Even Russian President Vladimir Putin chimed in on the matter, hinting that Iran, who is still trying to reach pre-sanction output levels of 4 million barrels per day (bpd), could be placated, stating that an oil production freeze could include a compromise on Iranian ouput.
Iran’s failure to participate in a production cap meeting in April caused a knee-jerk response from regional rival Saudi Arabia who also pulled out of the meeting.
However, disheartening news for oil markets broke over the weekend when OPEC Secretary-General Mohammed Barkindo, a Nigerian, said that the Algiers meeting would be an informal meeting for consultations and not for decision making, according to a report in Algerian state news agency (APS) on Saturday.
“It will be an informal meeting, it is not a meeting for making decisions,” Barkindo said. “We met in June, it is September now and a lot of things happened between the two dates.”
Could Nigeria swing oil markets?
While not mentioning what’s happened in the past few months, some of what Barkindo could be considering are new developments in his country’s beleaguered oil sector.
Simply put, the fact that the OPEC Secretary-General is a Nigerian has to be taken into account.
Nigeria, Africa’s most populous nation, and OPEC member since 1971, has seen better days for its oil sector. For the past year, various militant groups have repeatedly attacked oil infrastructure, particularly pipelines in the Niger Delta, hampering and even shutting down production and throwing the country into a recession. Nigeria’s economy has contracted for two consecutive quarters. Oil revenue comprises around 70% of the country’s GDP.
According to the Nigerian Bureau of Statistics (NBS), oil production plunged to 1.69 million bpd in the second quarter, down from 2.11 million bpd during the first quarter of the year.
Ratings agency Standard & Poor’s cut Nigeria’s credit rating on Friday, saying the drop in oil production and a restrictive foreign exchange regime was hurting its economic prospects.
“The oil sector narrowed the most in the second quarter, falling by close to 20 per cent year-on-year following intensified pipeline vandalism in the Niger delta,” S&P said.
AFP said that the downgrade came on the same day that Nigerian President Muhammadu Buhari’s government announced its plan to raise $1 billion on the Eurobond market this year to help offset oil revenue losses.
However, last week the Niger Delta Avengers (NDA), a major militant group, said that it had halted hostilities in the Niger Delta and were ready for negotiations with the government.
Meanwhile, ExxonMobil announced on Thursday that it’s offering Qua Iboe crude cargo for October loading for the first time since it declared force majeure on Nigeria’s Qua Iboe oil exports in July. Qua Iboe is Nigeria’s largest oil exporting facility.
However, despite saturated oil markets, the last thing that Nigeria could possibly want would be any kind of oil production cap agreement.
While the country would be free to continue producing oil at whatever level it could muster, it would prove politically embarrassing for OPEC’s General Secretary, a Nigerian, if his country was not part of a much needed production cap agreement.
Another OPEC member whose oil production increase will impact global oil markets is Libya. The country has been embroiled in near civil war and an on-going battle against ISIS that has hit its oil production hard. Now, Libya will also increase output, attempting to open up for oil exports from its eastern ports of Ras Lanuf, Es Sider and Zueitina.
A report in TradingFloor.com, said that a resumption of supplies from Nigeria and Libya could add “more than 800,000 bpd into a market already struggling to bring down a persistent overhang of supply.”
In light of Nigeria’s and Libya’s recent geopolitical woes and revenue loses, one could forgive both countries for failing to agree to any oil production freeze – despite repressed oil prices.
Global oil prices fell on Friday in anticipation of more Nigerian and Libyan crude hitting the market. By the end of the trading day on Friday, U.S.-benchmark West Texas Intermediate Crude (WTI) had dropped 2%, to multi-week lows, trading at $43.03. Global bench mark, London-traded Brent futures dropped by 1.6%, at $45.87/bbl.
By Tim Daiss
LinkedIn Twitter Xing EmailWhen I left my second large company experience to become President of a small manufacturing company I did so driven by ego; I fancied the title. Soon […]
LinkedIn Twitter Xing EmailFirm details on exactly how the U.K. will regulate new medicines is still to be decided after it leaves the EU later this year (caveats on timing […]
LinkedIn Twitter Xing EmailThe Simply Good Foods Company, the owner of Atkins-branded food products, has secured a deal to acquire protein snack maker Quest Nutrition for $1 billion. Quest, which […]