As Oil Hits Seven-Year High of $90, OPEC+ to Continue with Additional 400,000bpd

The Organisation of Petroleum Exporting Countries (OPEC) and its allies OPEC+ are expected to continue their last year’s plan to gradually release 400,000 barrels per day when they meet next week.

This is just as crude oil price rose to a seven-year high of over $90 a barrel on Wednesday, supported by tight supply and geopolitical tensions in Europe and the Middle East, raising concerns about further disruption.

Specifically, Brent crude rose to $90.21, the highest since October 2014, while US West Texas Intermediate (WTI) crude was  $87.69.

Oil futures contract had been propelled higher recently by perceptions that demand growth is outrunning that of supply, and by broader concerns that geopolitical events could test already-reduced spare crude production capacity.

Global demand has largely recovered from the collapse of 2020 and governments, with the notable exception of big consumer China, are becoming increasingly relaxed about the Covid-19 pandemic with the result that precautionary lockdowns are starting to ease.

On the supply side, there are few signs that US shale producers are responding to higher prices, although US independent ConocoPhillips’ chief executive Ryan Lance told the Argus Americas Crude Summit this week that at these levels futures represent a “tacit call” for US output to increase.

However, some delegates told Bloomberg that the oil producers’ group would stick to plan and ratify another modest production increase as it tries to satisfy rebounding oil demand.

But countries like Nigeria with a daily underperformance figure of 78,000 barrels per day in December, for instance, have slowed down OPEC’s ability to fully pump the entire 400,000 bpd every month.

Last month, Nigeria slumped lower than other previous production performances, compared to for instance, October, in which 1.228 barrels were pumped per day, and November during which 1.275 million barrels were produced per day.

Given an average price of about $85 per barrel for that month, the inability to pump more oil may have cost the country approximately $205.5 million for the entire month.

The data, according to OPEC, which uses both primary and secondary sources to obtain information on production levels, was received from direct communication with Nigeria.

Among members of the cartel, the OPEC Monthly Oil Market Report (MOMR) for January showed, only crisis-torn Libya, lost more oil than Nigeria, with a production deficit of roughly 119, 000 barrels per day.

For proper context, Nigeria’s quota for February remains at 1.701 barrels per day, but the country’s effort to produce more in the last few months has not yielded any fruits.

While the target is to produce about 1.86 million barrels daily by the Nigerian National Petroleum Company (NNPC) Limited, poor upstream infrastructure, long term waning investment and the impact of the OPEC-induced shutdowns last year, have combined to hobble the number of barrels pumped by Nigeria.

But it was learnt yesterday that the 23-nation coalition led by Saudi Arabia and Russia would probably rubber-stamp a hike of 400,000 barrels a day for March, according to officials from about half of the group’s members.

Although it was estimated that OPEC+ spare capacity was about 5.2 million bpd, of which just over three million bpd was being held by Saudi Arabia and the UAE, the coalition appeared unwilling to break its rules to allow individual countries to raise output above and beyond agreed levels.

The coalition had stuck to its schedule for gradual monthly supply increases since forging the agreement, but whether the cartel will actually be able to add this volume to the market is unclear.

Revival of production halted during the pandemic has started to run into capacity constraints, with many members failing to hit their targets for reasons ranging from lack of investment to militant unrest.

As world fuel consumption heads back to pre-crisis levels, the struggles of OPEC and its partners have contributed to a rally in prices to a seven-year high.

That’s a growing source of pain for consuming nations as escalating fuel bills feed into inflationary pressure and a cost of living crisis afflicting millions around the world.

Last month, OPEC+ nations managed only two-thirds of their stipulated increase, according to the group’s data, with Nigeria, Angola and Russia all coming up short.

Emmanuel Addeh
in Abuja with agency report

Follow us on: