Thursday, July 29, 2021

Oil Production Quota: UAE and Saudi Compromise: What is in it for Nigeria?

Thursday,
July 15, 2021 / 11:52 AM /  By CSL Research / Header Image Credit: World Oil

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Recently, news reports say the United Arab
Emirates and Saudi-Arabia reached a compromise on oil production quota. Earlier
in the month at the 18th meeting of the Organisation of Petroleum Exporting
Countries and its Allies (OPEC+), the decision of members to increase daily
production by an additional 0.4mbpd received stiff opposition from the UAE, as
it sought to make the group increase its production from the current 3.17mbpd.
Based on the report, an agreement has been reached to increase UAE’s
production, but it is subject to approval of members at an extra-ordinary
meeting soon to be convened. Price has since reacted dropping 0.64% to
US$74.28.

 

The onset of the coronavirus pandemic in 2020 resulted
in a slump in global demand for energy, which caused a significant decline in
oil prices (BRENT and the West Texas Intermediate) to an all-time low. This
prompted the institution of production cuts by OPEC+ to support prices.
Initially, the Cartel had settled for a 9.7mbpd production cut to match supply
with demand. This has been gradually eased to 5.8mbpd by July. Since then, the
global economy has continued to show signs of recovery. OPEC expects that
global demand for crude-oil will grow by an average of 6.6%, reaching close to
the pre-pandemic levels by the end of the year.

 

Rising oil price bodes well for the Nigerian budget,
given its benchmark price for crude oil for the 2021 fiscal year is pegged at
US$40/bbl. Any decision to increase output by the cartel, would also result in
increased production for Nigeria. On the flip side, an increase in oil prices
implies an increase in the price of petrol which currently implies an increase
in subsidy reported as under-recovery losses in the books of the NNPC. Despite
the rising oil prices, however, the impact is yet to be seen in the level of
the country’s reserves. This reflects the increased CBN’s FX interventions and
low impetus for foreign inflows. Nigeria’s external reserves stood at
US$32.85bn as of 12 July 2021, with oil portion of export receipts at 66.4% as
of Q1 2021.

 

Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.

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Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.

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