Nigeria: OPEC May Rollover Crude Oil Production Cut to April

4 March 2021

Abuja — Ahead of its long-awaited decision today, the Organisation of Petroleum Exporting Countries (OPEC) and its allies, a group known as OPEC+, are considering rolling over production cuts into April instead of raising output as a recovery in oil demand remains fragile due to the COVID-19 crisis.

With the compulsory cuts, Nigeria's production has dipped by 313,000 barrels per day since January while the country has been pumping 1.516 million barrels instead of its reference 1.829 million bpd, far lower than the target of 3 million bpd set by the Nigerian National Petroleum Corporation (NNPC) before the COVID-19 pandemic.

However, the corporation has been focusing on condensates, which are excluded from the production curtailment to curb the crude oil supply glut and boost the government's revenue.

Although he admitted that reduction in output was in the best interest of the oil market, Nigerian National Petroleum Corporation (NNPC) Group Managing Director, Mr. Mallam Mele Kyari, recently stated that the cut had negatively affected the government's revenues.

But OPEC+ ministers will hold a full meeting today to decide on the output for next month, amid market expectations for the group to ease production cuts by around 500,000 barrels per day (bpd) from April, with OPEC leader, Saudi Arabia, expected to end its voluntary production cut of an additional one million bpd.

But Reuters yesterday quoted three OPEC+ sources as saying that some key OPEC members had suggested keeping the group's output unchanged, with a ministerial panel meeting ending yesterday without making any policy recommendations.

It was not immediately clear whether Saudi Arabia would end its voluntary cuts or extend them, they said, however, oil prices jumped by about $1 per barrel on the news to trade near $64 per barrel.

On Tuesday, a document by OPEC+ experts called for "cautious optimism," citing "underlying uncertainties in the physical markets and macro sentiment, including risks from COVID-19 mutations that are still on the rise."

It said a recent oil price rally might have been caused more by financial players than improvements in market fundamentals.

OPEC expects global oil demand in 2021 to grow by 5.8 million bpd to about 96 million bpd, which will still be lower than demand in 2019, which was about 100 million bpd.

Russia has been widely expected to push for more increase, but in February, it failed to raise output despite being allowed to do so by OPEC+ as harsh winter weather hit output at mature fields.

JP Morgan, which said it had spoken to Russia's representative on the OPEC+ technical committee, Denis Deryushkin, reported that Russia saw some rationale in raising output as the oil market was in a 500,000 bpd deficit.

"Russia believes that if the output is maintained at current levels, the market would move into an even more severe deficit.

"As such, production needs to be restored, but the speed and amount are yet to be decided," it said.

Meanwhile, governments and energy companies are placing large bets on clean hydrogen playing a leading role in efforts to lower greenhouse gas emissions, but its future uses and costs are highly uncertain.

"Without hydrogen by 2050, we cannot aim to be a net zero (carbon) economy," Royal Dutch Shell CEO, Ben van Beurden, told the CERAWeek online conference.

The universe's most abundant element, hydrogen, has been touted for decades as an alternative to fossil fuels, but attempts to commercialise it for use in vehicles and industry have largely failed.

So far, commercial-scale production has been from natural gas or coal and it is a niche market used mainly in oil refining and heavy industry.

But so-called blue hydrogen, where carbon emissions from its production are not released into the atmosphere, and green hydrogen, which is made with renewable power, are attracting huge interest as a clean alternative to natural gas that can be used for heating homes, heavy industry and transportation.

With Agency Report

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