Consequences for Nigeria of OPEC's output cut

Dec 11, 2004 01:00 AM

The Organisation of Petroleum Exporting Countries (OPEC) is to cut its crude production by 1.0 mm bpd to keep output at the group's ceiling of 27 mm bpd. At an informal meeting held in Cairo, Egypt, OPEC ministers said the decision to reduce output, which would become effect mid January 2005, was to check the sliding prices in crude oil prices that has seen the benchmark Brent crude, dropped 25 % from its peak last October.
By this decision, Nigeria, OPEC's sixth largest producer, is expected to cut its oil production to the official quota of 2.224 mm bpd. The country was producing at 2.40 mm bpd as at October this year according to the Central Bank of Nigeria, although community crises might have dropped the production further.

OPEC has been producing at the highest level since September this year in the bid to check spiralling oil prices that hit $ 56 per barrel in October. According to a survey, the group, which controls more than 40 % of global oil output, produced some 28.02 mm bpd in November.
The world's largest producer Saudi Arabia, has been pumping about 9.5 mm bpd since last August -- almost 900,000 more than its quota. However, in the run-up to the meeting, some members including Nigeria, had expressed apprehension that OPEC must move to arrest further slide in prices which stood at $ 42 per barrel for the US light sweet crude and $ 38 for the Brent.

According to the Special Adviser to the President on Petroleum and Energy, Dr Edmund Daukoru, "I would like there to be a signal sent to the market to stop a further fall." He there enjoined OPEC members to stick to their current production quotas.
Oil exports account for more than 90 % of Nigeria's foreign exchange revenue. High oil prices have already boosted the country's foreign reserves to $ 14.72 bn by October this year. The Federal Government also expects to earn over N 600 bn as oil windfall in 2004.

Many OPEC members -- particularly those in the Middle East -- are relying on higher oil prices to support the publicpurse, burdened by growing populations and high unemployment.
"Everyone has committed for next month," said Kuwaiti oil minister Sheik Ahmad Fahad Al-Ahmad Al-Sabah. The OPEC decision will however, disappoint consumer nations which have urged the organization not to cut back production, saying oil inventories must rebuild to underpin economic growth and calm volatile prices.

Leading producers Iran and Kuwait have said OPEC's next February meeting should consider cutting the existing 27 mm bpd ceiling for the second quarter period when demand is seasonally weak.
At the meeting the group agreed to keep the current ceiling unchanged, a delegate said.

Source: This Day
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