Page 5 - AfrOil Week 31

AfrOil COMMENTARY AfrOil

Moreover, it has already been called out for these decisions, so there will be no penalties or
habits. punishments.
The Joint Ministerial Monitoring Commit- Instead, there will be another round of wait-
tee (JMMC), a body established by the OPEC+ ing to see whether the extra barrels will make
group, noted earlier this summer that Nigeria world crude markets bearish and thereby bring
had not cut production by 417,000 bpd as agreed revenues down.
in May and June but had fallen short of that goal There may also be another round of rebuke
by 180,000 bpd in May. It then instructed the from Saudi Arabia, the leading member of
West African state to compensate for its short- OPEC, followed by another round of promises “
comings by reducing output even further, taking from Nigeria to remain in line. If Nigeria
another 45,000 bpd beyond the targets outlined
in the OPEC+ deal off the market between July Old habits die hard produces more
and September. This pattern usually benefits Nigeria, as it puts crude oil, it has
Nigeria agreed to those conditions in dis- the country in a position to sell a little more oil
cussions with the committee in late June, and than expected and thereby earn a little more no guarantee
officials in Abuja have said more than once money than anticipated.
since then that the government is determined to This year, though, the coronavirus (COVID- that it will be
uphold its pledges to the OPEC+ group. So far, 19) pandemic has wreaked havoc on global
though, its performance has been questionable. energy markets, causing demand to fall and able to unload
After talks between the two sides, Bloomb- stock levels to rise as traders look for places to the extra barrels
erg said on June 30 that Nigeria would have to store the fuels that their customers don’t want
trim output levels back to 1.37mn bpd in July in to buy.
order to sustain its commitments. But if Sylva’s As a result, if Nigeria produces more oil, it
statement on July 30 is correct, the country actu- has no guarantee that it will be able to unload the
ally exceeded that target last month, as its yields extra barrels. Moreover, it does not have enough
averaged 1.412mn bpd. storage space to transfer the excess production
to its inventories until conditions improve. In
No carrots, no sticks other words, if it proceeds down the usual path,
Technically, of course, there is still time for Nige- it will be stuck with more oil than it can sell –
ria to make good on its promises to the OPEC+ much as it was in mid-April, when major press
group. agencies were reporting that Nigerian National
The West African country has most of Petroleum Corp. (NNPC) was still looking for
August and all of September left to try to bring buyers for no less than 60 cargoes of April- and
its production levels down to the point where May-loading crude.
they meet with JMMC’s approval. Nevertheless, old habits die hard. Instead,
Nevertheless, Nigeria’s incentives for compli- Nigeria will probably continue to produce in
ance are limited. From past experience, officials excess of its quota – this time, to its own detri-
in Abuja know that their country will not face ment, since oil prices have shown signs of weak-
any immediate consequences for quota-busting. ness in the face of some OPEC+ group members
Neither OPEC nor the OPEC+ group has any rolling back production cuts while demand
formal methods of enforcing their production remains sluggish. ™

(Photo: Voice of Nigeria)

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