The cut comes on the heels of an April 12, 2020, agreement among Organisation of Petroleum Exporting Countries (OPEC) member countries to cut a total of 9.7million barrels in a bid to shore up oil prices. The deal takes effect on May 1, 2020.
This was even as a former Minister of Finance, Dr. Ngozi Okonjo-Iweala, warned that the continuous drop in oil prices portends grave danger for the economy, while urging the Federal Government to initiate steps to diversify its sources of revenue if it wants to make progress in the implementation of the 2020 budget.
Nigeria has yet to figure out how and from where to cut production as part of the OPEC+ deal, and this has led to a delay in the May and June crude oil export plans of the Nigerian National Petroleum Corporation (NNPC), trading sources said on Monday.
Since NNPC operates many of the oilfields in the country in joint ventures with international oil majors, including Exxonmobil, Chevron, Shell, and Eni, the Nigerian state oil firm is still negotiating the cuts with oil majors. This is the reason why the crude oil loading programme for June and the official selling prices (OSPs) for May have been delayed, according to trading sources.
But the Federal Government as part of measures to cushion the effect of low oil prices which accounts for over 70 per cent of the country’s revenue reduced its oil price benchmark from $57 to $30 per barrel while the oil production volume was reduced from 2.18 million barrels to 1.70 million barrels per day
However, the new OPEC deal taking effect May 1, will see all that change as Nigeria will now be producing 1.412 million bpd in May-June 2020, 1.495 million bpd in July-December 2020, and 1.579 million bpd between January 2021 and April 2022.
This is in addition to condensate production of 360,000 bpd to 460,000 bpd from which Nigeria is exempt from the cuts.
According to OPEC’s secondary sources in its official production figures for March 2020, Nigeria pumped 1.853 million bpd of crude oil in March, up by 65,000 bpd compared to February.
According to other trading sources, Nigeria’s flagship Bonny Light crude grade has been recently offered at a discount of $5 a barrel to dated Brent, while it would have fetched a premium of $3 a barrel over Brent if market conditions were normal.
There are April and May cargoes of Nigerian oil that have not been sold yet, other sources say—a sign that demand is so depressed that no one wants even oil at $15 a barrel or less.
In these circumstances, Nigeria has no other choice but to cut its production.
“We have to cut down, whether with or without OPEC output cut deal. We have to reduce our oil production level because we do not have where to take the oil to, till the situation improves. The impact of the crisis is global and not on Nigeria alone,” Mele Kyari, Group Managing Director at NNPC, had said last week.
In his reaction, Managing Director of Cowry Assets Limited, Mr. John Chukwu, said the IMF projection that the country may be heading for its worst recession in 30 years is predicated on the fact that country does not have the internal resources to cushion the effect of what it is going through as a result of crash in oil prices.
He said what the country should be doing to moderate the impact of the pandemic on the economy is to attract foreign capital into the economy.
He advised that Government should quickly pass the Petroleum Industry Bill (PIB) so that it could change the ownership of the oil sector by turning them into Incorporated Joint Venture (IJV).