OPECplus Maintains Supply Output of 400,000bpd in December

Sunday, November 07, 2021 /08:18
AM / by FDC Ltd / Header Image Credit: Reuters

At its just concluded meeting, the organization of the
petroleum exporting countries and its allies (OPEC+) again retained its monthly
oil output of 400,000bpd in December. This is occurring despite the white
house’s appeal to increase supply. Prior to this, the oil cartel had, in July,
agreed to gradually ramp up oil production on a monthly basis by 400,000bpd
starting from August 2021 until the 5.8 million barrels per day (mbpd)
production adjustment is phased out. The decision was premised on improved global
oil demand as the economic recovery continued in most parts of the world.
However, the threat of a new wave of COVID and another mutation of the virus
hangs precariously over the global economic outlook.

Individual production quotas were also reviewed
upwards as Nigeria’s quota was increased to 1.67mbpd from 1.65mbpd. This is
happening at a time when oil prices are at multi-year highs due to a
demand-supply deficit. In response to OPEC+’s decision, brent rose 2.74% to
$82.75pb. Analysts believe that it could touch $100pb by year-end. However, the
strengthening of the US dollar as the US Fed begins tapering in addition to the
prospects of increased global supply from Iran as nuclear talks with the US
resume will put downward pressure on oil prices.

Implications

Oil is Nigeria’s major export (over 80%) and revenue
earner for the government. Higher oil prices and production translates to
increased fiscal and forex receipts which is positive for Nigeria’s external
balances and financing needs. It will strengthen the CBN’s ability to support
the naira at the forex market. However, Nigeria may be unable to take advantage
of the rise in its quota as its oil output (1.45mbpd in September) has remained
below quota for several months and could continue to limit its oil earnings.