Nigeria Signals Oil-Output Cap Needs Six Months of Stability

LAGOS (Capital Markets in Africa) – Nigeria indicated Wednesday that it won’t be willing to cap its oil production until at least the second quarter of next year, and then only if it’s managed to keep output consistent near its target for six months.

The OPEC member, which along with Libya was exempted from a 2016 accord to reduce production to ease a global-supply glut, had previously said that the output limit would come into play when Nigeria can stably pump 1.8 million barrels a day, about 170,000 barrels more than it’s currently producing.

“I will recognize stability if I can consistently say that for a period of at least six months, I’ve seen average daily production that is within the umbrella of 1.8 million barrels a day,” Petroleum Minister Emmanuel Kachikwu told reporters Wednesday in Abuja, the nation’s capital. Nigeria’s production levels remain very volatile, he said.

The Organization of Petroleum Exporting Countries and its allies are discussing extending by more than three months the cuts that are set to expire in March, potentially prolonging them well into the second half of next year in an effort to boost prices, according to people familiar with the matter. The effectiveness of the cuts has been undermined in part by recovering output from Libya and Nigeria, which were exempted from the accord because of internal strife, and drilling by U.S. shale producers.

Nigeria is currently pumping 1.63 million barrels a day of crude and is likely to average 1.6 million to 1.7 million in 2017. Crude and condensates together will reach around 2 million barrels a day this year, according to Kachikwu. Crude production is estimated to average 1.8 million barrels a day in 2018, he said.

“I will not be surprised if an extension to the cuts is contemplated post-March,” Kachikwu said. “As long as the volumes are still a challenge, we will continue to do everything that we need to do to tighten up the market.”

After the Accord
OPEC members still aren’t close to agreeing on what to do when the accord expires, Venezuelan Oil Minister Eulogio del Pino said Wednesday at a news conference in Kuwait City.

Instead of deciding to extend the deal at OPEC’s next ministerial meeting in November, the organization and its allies may wait until the first quarter to make a final decision, Kuwaiti Oil Minister Issam Almarzooq said at the same news conference.

Conversations among OPEC members are revolving around how to be low-cost producers, rather than being purely about cutting the amount of oil being pumped, Kachikwu said, adding that the exporter group needs to have the lowest cost of production. Crude prices will end the year at $55 a barrel and reach the low $60s in 2018, he estimated, noting that the oil market will probably begin to balance out near the end of next year.

“When you look at the rate which we are depleting reserves in consuming countries and the reserve capacity of shale, everything added up is showing us towards the last quarter of 2018 we will expect a better market,” Kachikwu said.

Front-month Brent crude futures traded at $55.52 a barrel by 11:38 a.m. on the ICE Futures Europe exchange in London. The global benchmark settled Wednesday at $55.16 a barrel, the highest since April 17.

Source: Bloomberg Business News