The Organization of Petroleum Exporting Countries (OPEC) yesterday agreed to boost production quota of member states by an additional 400,000 barrels per day, effective from August 2021.
In addition to the initial increase of 400,000 barrels per day, member states at the recently concluded 19th OPEC and non-OPEC ministerial meeting (ONOM), held on the 18th of July 2021, resolved to ramp up their output by a total of 2 million barrels per day by the end of the year. The monthly output increases will continue until December 2022.
Here is a highlight of the resolutions at the meeting;
- Reaffirm the Framework of the Declaration of Cooperation, signed on 10 December 2016 and further endorsed in subsequent meetings, including on 12 April 2020.
- Extend the decision of the 10th OPEC and non-OPEC Ministerial Meeting (April 2020) until the 31st of December 2022.
- Adjust upward their overall production by 0.4 mb/d on a monthly basis starting August 2021 until phasing out the 5.8 mb/d production adjustment, and in December 2021 assess market developments and Participating Countries’ performance.
- Continue to adhere to the mechanism to hold monthly OPEC and non-OPEC Ministerial Meetings for the entire duration of the Declaration of Cooperation, to assess market conditions and decide on production level adjustments for the following month, endeavoring to end production adjustments by the end of September 2022, subject to market conditions.
- Adjust, effective 1st of May 2022, the baseline for the calculations of the production adjustments according to the attached table (table 1).
- Reiterate the critical importance of adhering to full conformity and taking advantage of the extension of the compensation period until the end of September 2021. Compensation plans should be submitted in accordance with the statement of the 15th OPEC and non-OPEC Ministerial Meeting.
- The meeting decided to hold the 20th OPEC and non-OPEC Ministerial Meeting on 1 September 2021.
In line with the recent action, naijabusiness.com.ng aims to examine what Nigeria being a member of OPEC, stands to gain.
Impact on oil output
Nigeria currently produces about 1.4 million barrels of crude oil per day. In this light, the recent policy directive will help shore up the country’s output to around 1.8 million barrels per day, ceteris paribus.
However, analysts who spoke with naijabusines.com.ng expressed doubts over Nigeria’s ability to ramp up its output in commensurate terms with the pre-specified quota. The analysts unanimously called on the Federal Government to scale up or attract more investment in the oil and gas sector in order to attain the new production quotas.
What happens to revenue and other macro-economic factors?
If the issues that inhibit production are squarely addressed, ceteris paribus, output will increase and same with revenue. It is no longer news that Nigeria is a monolithic economy that depends majorly on oil. In this light, the new production quota will help address the fiscal situation that the country currently finds itself in.
An increase in oil earnings as result of the new policy directive will help boost the external reserve positions of the country and strengthen the stability of the exchange rate. It also presents a great opportunity for the country to meet up with its debt obligations.