Page 5 - AfrOil Week 15 2020

AfrOil COMMENTARY AfrOil
 Nigeria
Nigeria, which is Africa’s largest oil producer and also a member of OPEC, has publicly embraced the agreement. On April 13, Timipre Sylva, Nigeria’s Minister of State for Petroleum Resources, said that his country was committed to making output cuts.
In a statement, Sylva said that Nigeria would be trimming production to 1.412mn bpd in the first phase of the new OPEC+ deal, to 1.495mn bpd in the second phase and to 1.579mn bpd in the third phase. These numbers will represent cuts of 417,000 bpd, 334,000 bpd and 250,000 bpd respectively, or about 4.299%, 4.175% and 4.167% of the total amounts to be taken off the market in each phase.
The statement stressed that the reductions would not cover gas condensate, the lightweight liquid hydrocarbon that accounts for a large share of production from Egina and other new Nigerian fields. It noted that the country was currently extracting about 360,000-460,000 bpd of condensate, which it described as “exempt from OPEC curtailment.”
Sylva said in the statement that he anticipated the new OPEC+ agreement would “enable the rebalancing of the oil markets and the expected rebound of prices by $15 per barrel in the short term.” He also reported that Nigeria had revised this year’s budget to reflect the assumption that world oil prices would average $30 per barrel this year. (This is nearly 50% below the original figure of $57 per barrel.)
Algeria
Algeria, another OPEC member, had indicated before the cartel’s extraordinary meeting that it was ready to go along with output cuts.
Mohamed Arkab, the North African state’s energy minister, said on April 8 that he hoped OPEC and its allies would take “decisive, imme- diate” action to balance world crude markets. Doing so will help both producers and consum- ers of oil, he asserted.
Arkab spoke similarly on April 10, the same day that OPEC and most of its allies (with the exception of Mexico) agreed terms on the broad outlines of the new production deal. He described output cuts as “necessary and indis- pensable to help stabilise the oil market.”
The energy minister remained upbeat after the meeting, saying that the new OPEC+ agree- ment would lead to the rapid rebalancing of world oil markets. He also said during an inter- view with National Radio that he did not expect Algeria’s crude export revenues to fall as a result of the drop in production.
Additionally, he noted that Algeria had agreed to reduce output by 240,000 bpd in the first phase of the deal, by 193,000 bpd in the second phase and by 145,000 bpd in the third
phase. These cuts will account for 2.47%, 2.41% and 2.42% respectively of total adjustments, and they will bring yields down to 817,000 bpd, 864,000 bpd and 912,000 respectively.
South Sudan
Meanwhile, South Sudan has also endorsed the production cuts. The country is not a member of OPEC, but it has agreed to join the OPEC+ pact. According to figures posted by Reuters, it will take 30,000 bpd off the market in May and June, thereby bringing yields down to 100,000 bpd from the reference level of 130,000 bpd.
It is not yet clear whether South Sudan has also agreed to reduce production during the second and third phases of the deal. But officials in Juba have praised OPEC and its allies, saying they support the group’s efforts.
“The current price war and the coronavirus pandemic have affected our economy and pros- pects for investments, so we naturally welcome all efforts to stabilise the oil market, and the Republic of South Sudan will continue to play its role in ensuring market stability for the ben- efit of all stakeholders,” said Petroleum Minister Puot Kang Chol in a statement dated April 13. “Our government will continue doing its utmost best in meeting the oil production adjustment targets and in fighting the coronavirus. These are priorities, and we will continue collaborating with all our partners to preserve the interests of our industry and our economy.”
He also stressed, though, that South Sudan’s long-term goal was to increase oil production. “Our production was over 350,000 bpd before the civil war [that began in 2011], and following continuous efforts to put damaged fields back into production, we are currently producing about 185,000 bpd,” he said. “Our target is to attract more investment into our oilfields to get our nation back to [the pre-2011] production level of 300,000 bpd.”
Looking ahead
It does remain to be seen whether these displays of optimism are justified.
Oil markets did react positively to reports of the new OPEC+ deal. Brent crude gained nearly 5% over the weekend, while WTI went up by about 6.6% – not a bad showing, considering that both benchmark grades have plunged by more than 50% since the beginning of the year.
Nevertheless, prices have started sliding down again, largely because of traders’ and ana- lysts’ perceptions that the reductions in output simply do not go far enough to make up for coronavirus-related demand destruction. If these considerations remain in play, the Afri- can oil producers mentioned here may not have much of an incentive to comply with the new OPEC-plus agreement.. ™
“ revised its
Nigeria has
budget to reflect the assumption that world oil prices will average $30 per barrel this year
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