The Organisation of Petroleum Exporting Countries (OPEC) has said that among its member countries, crude oil output increased most in Nigeria in February. This was revealed in its Monthly Oil Market Report (MOMR) released and made available to our correspondent.
The Ministry of Petroleum Resources had disclosed that the decision of the Organisation of Petroleum Exporting Countries, OPEC, to exempt Nigeria from the oil output cut deal was as a result of strategic negotiations and the worrying incidences of vandalism of the country’s petroleum installations.
Giving details of the agreement reached, the Ministry said that at the 171st meeting held in Vienna, OPEC reached a landmark deal that will effectively cut production by about 1.2 million barrels per day, or about 4.5 percent of current production, to 32.5 million barrels per day.
The Ministry said the deal saw Saudi Arabia agree to take on the highest burden of cuts — a 486,000 barrels a day cut to its output, while efforts are on to persuade Iraq to reach a decision to reduce its output, as well as getting non-OPEC producer Russia on board for a 300,000 barrel-a-day cut.
The MOMR also revealed that the extended period of lower oil prices did not have the positive effect on global GDP expected by many economists, although the impact differed considerably among countries.
In a study by OPEC’s Research Division, however, lower oil prices did have a positive effect on global oil demand growth, mainly in the road transportation sector, while some countries showed higher growth levels than others. The most notable negative impact on non-OPEC crude supply was on US tight crude oil, conventional crude output from Canada, and crude oil supply in China and Colombia.
The OPEC study, which covered the period 2014 to 1Q16, analysed the implications of recent oil price developments on the global economy, world oil demand and non-OPEC supply, focusing on OECD Europe, US, Japan, China, India, Brazil, Mexico and Russia and among countries. In the case of the US, the net negative effect of the decline in the oil price is estimated to have lowered GDP.
It said, “The two main factors leading to this outcome are lower total output levels due to lower oil prices and sharply declining investments into the energy sector. Both have outweighed the positive effects of higher consumption. In OECD Europe, the effect of lower oil prices seems to have been mildly positive. In Norway, the net effect seems to have been negative, while in the UK, with its also relatively large energy sector, the impact has been balanced.
“The larger importer economies, particularly Germany, have experienced a positive effect. For OPEC Member Countries, the recent oil price collapse episode has had different impacts, though at varying magnitudes. Countries with sizable reserves of hard currencies could better handle the situation by shielding their local currency from collapse, and shoring up public spending and investments. Other countries have been forced to severely cut public spending and investments, which has coincided with a harmful spike in inflation due to a devaluation of their currencies.
According to secondary sources, OPEC crude oil production in February decreased by 0.14 mb/d from the previous month to average 31.96 mb/d.
Further analysis of the report revealed that Africa’s oil supply is forecast to grow by 50 tb/d to average 2.16 mb/d in 2017 following a decline of 20 tb/d last year.
It said, “In 2017, oil production will grow in Chad, Congo and Ghana, while production in South Africa and the Sudan will be stagnant. Oil production in Egypt and Equatorial Guinea will decline in 2017 by 20 tb/d and 10 tb/d, respectively,” the MOMR added.
According to the report, total oil production of developing countries (DCs) is estimated to decline by 80 tb/d y-o-y to average 12.23 mb/d in 2016, revised down by 20 tb/d compared with the previous assessment.
It said growth is expected to a lesser degree in Africa compared to Latin America while adding that asia’s Oil supply will see adecline due to the return of Indonesia to non-OPEC group of producers.
The MOMR said, “Growth 0.18 mb/d is expected in Latin America − mainly from Brazil – to average 5.30 mb/d and, to a lesser degree, Africa, increasing by 50 tb/d – mainly from Congo and Ghana – to stand at 2.16 mb/d.
“Other Asia’s oil supply will see a decline of 50 tb/d to average 3.67 mb/d due to the return of Indonesia to the non-OPEC group of producers. A decline of 60 tb/d is also expected for the Middle East to stand at 1.23 mb/d.
“The reason for this revision was due to upward revisions in Thailand’s oil production since 2014, which led to an upward revision by 101 tb/d in the supply base. Brazil also experienced an upward revision in 2015 by changing the base by 15 tb/d. Therefore, the 2016 DC’s base was up by 109 tb/d to average 12.23 mb/d from 12.13 mb/d in the last assessment, while supply growth remained unchanged at 0.08 mb/d in 2016, it stated.
In 2017, DC’s supply is forecast to grow by 0.12 mb/d to average 12.36 mb/d, showing a downward revision in annual growth by 39 tb/d compared to the last MOMR. The key region for these changes is Africa (-20 tb/d), Other Asia (-16 tb/d) and the Middle East (-9 tb/d), while Latin America was revised up by 6 tb/d.
The report also stated that the OPEC Reference Basket rose in February for the third consecutive month, ending up about 2% to average $53.37/b. Crude futures, traded in a relatively narrow range for the second month in a row. High compliance with supply adjustments by OPEC and some non-OPEC producers supported gains. Speculative activity hit a fresh record high for the third month in a row, providing additional support to oil prices.
In reference to the impact on the global economy, it stated that global economic growth expectations remain with slight changes at 3.0% in 2016 and 3.2% in 2017. OECD growth in 2017 is unchanged at 1.9%, with growth in US, Euro-zone and Japan seeing no revisions.
China is expected to grow by 6.2% in 2017, unchanged from the previous report. India is now expected to see a slight deceleration, following a marginal downward revision to 7.0% in 2017. Russia’s 2017 growth remains at 1.0%, while the forecast for Brazil was revised slightly higher to 0.5%.
“With no sign of an easing of the bullish build-up of net long managed money positions, bets on crude oil prices rising have hit a new record high for the third month in a row, giving additional support to oil prices.
“The ongoing conformity by OPEC and Non-OPEC producers with the production adjustment is causing the prolonged contango structure to ease in all markets. Moreover, further down the futures curve, the backwardation remained noticeable as of 2H17 onward.
“Sweet/sour differentials narrowed in Asia and the US Gulf Coast (USGC), while in Europe, they bucked the trend by widening despite the start of the supply adjustment agreement in the region, which should greatly affect the sour crude balance,” the report by OPEC stated.