A potential large collective production cut by members of OPEC and OPEC+ in response to the slump in demand with the Coronavirus outbreak is expected to drive oil prices upward, as Brent hits $52.46 per barrel yesterday.
Organisation of the Petroleum Exporting Countries (OPEC), Russia and nine other countries are in the fourth year of output cuts aimed at supporting prices, with the current deal calling on the 24 member-countries to cut 1.7 million barrels daily (mb/d) through the end of March.
Although the near-term outlook for global financial and energy markets remains grim and the forecast for the remaining of the year is deteriorating and is not looking any better, Nigeria remains hopeful that cuts would help push prices to be able to implement its 2020 budget.
Notwithstanding the gradual rise in oil prices they are still trading below the Federal Government’s benchmark, thus posing a threat to the 2020 budget, which was signed by the President Muhammadu Buhari in December, on the assumption of oil production of 2.18mb/d with an oil price benchmark of $57 per barrel.
As oil prices sank about 14 percent last week alone and the Brent hit a twelve-month low on the back of the Coronavirus outbreak, the OPEC is meeting in Vienna, Austria, this week to help stabilise the market.
Executive Chairman of the African Energy Chamber Nj Ayuk, while on TV
programme to discuss the Coronavirus’ impact on oil prices and OPEC’s
upcoming moves to stabilise global energy markets, said: “A bold and
substantial production cut by OPEC and OPEC+ member countries will help
alleviate oil market fears and bring stability.” “OPEC has a track
record of making market-driven deals that stand to benefits Wall Street
and Main Street. At the Energy Chamber, we remain bullish about a good
deal for oil producers and consumers, and most importantly market
stability. Africa will be closely watching what happens in Vienna this
week, especially after its first cases were declared in Senegal and
Nigeria,” he declared on Deutsche Welle.
Analysts point to the crude oil’s forward curve flattening in recent days, signalling oil traders’ lack of appetite for holding or selling stocks.
Saudi Arabia has been urging the OPEC+ alliance to extend the deal and tighten quotas by another 1 million b/d or more. The official OPEC+ recommendation is for 600,000 b/d in new cuts to help rebalance the oil market, but Saudi Arabia has pledged to over comply with another 400,000 b/d, according to sources.