Saudi Arabia and Russia on Tuesday announced that they would extend voluntary oil cuts until the end of the year, sending the price of Brent crude, Nigeria’s benchmark, to a 10-month high of over $90.
The Saudi production cut of 1 million barrels per day which first took effect in July will continue “for another three months until the end of December 2023”, the kingdom’s energy ministry said in a statement.
Russia’s export cut of 300,000 bpd will continue for the same period, AFP quoted the Deputy Prime Minister, Alexander Novak, as saying in a separate release.
The rising price of crude oil remains a dilemma to Nigeria which is currently unable to take full advantage due to its lack of capacity to produce the quota allocated to it by the Organisation of Petroleum Exporting Countries (OPEC).
While the oil cartel expects Nigeria to drill 1.742 million barrels per day, the last production figure for July showed that the country was only able to produce 1.08 million bpd, with a deficit of over 700,000 bpd for that month.
On the other hand, if the federal government does not restore some level of subsidy on the pump price of petrol , the rates Nigerians pay could likely shoot up in the coming months since there’s a direct positive relationship between crude prices and fuel prices. The government has recently said it does not plan to raise prices.
However, on Tuesday, Brent crude rose above $90 per barrel on the news for the first time since November, while West Texas Intermediate, the main US futures contract, jumped 1.9 per cent to $87.16.
Riyadh, the world’s biggest crude exporter, first announced its cut after a June meeting of the 23-nation OPEC+ alliance, which also includes Russia.
A statement in early August revealing the cut would last through September included a warning that it could be “deepened”, but Tuesday’s announcement has kept it at the same level for now.
That decision “will be reviewed monthly to consider deepening the cut or increasing production”, the energy ministry statement said as quoted by AFP.
The unilateral Saudi cut followed a decision in April by several OPEC+ members to slash production voluntarily by more than 1 million bpd, a surprise move that briefly buttressed prices but failed to bring about lasting recovery. Last October, OPEC+ agreed to reduce output by 2 million barrels per day.
That decision riled the United States, which at the time accused Saudi Arabia, a security partner, of siding with Russia in the war in Ukraine.
Oil prices increased in July, the first month the Saudi-only cut took effect, clearing the $80 per barrel threshold. Analysts often say Riyadh needs to balance its budget, though the various production cuts could push that threshold higher.
Saudi daily production is at approximately 9 million bpd, far below its reported daily capacity of 12 million bpd.
In August, oil firm Saudi Aramco announced profits of $30.08 billion for the second quarter of 2023, a fall of 38 per cent from the same period last year when prices surged after Russia invaded Ukraine.
In Nigeria, the state-owned Nigerian National Petroleum Company Limited (NNPC) is yet to release its Annual Financial Statement (AFS) for 2022.
Emmanuel Addeh
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