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Published On: Tue, Nov 18th, 2014

As Nigeria introduces austerity, OPEC battles to tackle oil prices

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OPEC-logoBy Ese Awhotu

Sliding oil prices continues to raise concerns in and outside members of the Organisation of Petroleum Exporting Countries (OPEC).

With cracks visibly developing among its member states, OPEC producers are moving fast to step up their diplomatic visits before the group’s meeting in two weeks, potentially seeking a consensus on how to react to oil prices that have plunged to a four-year low.

Libyan Prime Minister Abdullah al-Thani flew to Riyadh on Sunday just as Iraqi President Fouad Masoum left the kingdom after a two-day visit where he met with King Abdullah, the official Saudi Press Agency reported. Rafael Ramirez, Venezuela’s foreign minister and representative to OPEC, held talks in Algeria and Qatar. Saudi Arabia’s Oil Minister Ali Al-Naimi toured Latin America.

“The Saudis will not walk the road alone, they want to see everyone share the burden with them,” Kuwait-based analyst Kamel al-Harami said. Saudi Arabia, the world’s biggest oil exporter, is trying to build consensus among fellow members of the Organization of Petroleum Exporting Countries before they meet Nov. 27 in Vienna, he said.

There is speculation that OPEC will refrain from cutting output to ease concern of a supply glut.

Falling oil prices are straining state budgets among OPEC members, including Iraq’s government, which is leading a costly war against Islamist militants, and Libya that is struggling to keep crude output steady amid political divisions and violence as well as Nigeria that is battling Boko Haram insurgents.

Iran’s Islamic Republic News Agency said Bijan Namdar Zanganeh, the nation’s oil minister, delivered a message to Kuwait on behalf of President Hassan Rouhani. Zanganeh briefed Kuwaiti Emir Sheikh Sabah Al-Ahmad Al Sabah on developments in oil markets, the agency said. He also went to Qatar, IRNA reported.

Venezuela President Nicolas Maduro said he’d sent Ramirez to five countries, according to a televised address from Caracas.

“We are in a campaign to defend Venezuela, Venezuelan oil, international markets and the price of oil,” Maduro was cited as saying.”Oil sustains the development of our economic and social life.”

Ramirez met with Algerian President Abdelaziz Bouteflika, with both nations reaffirming a joint position to defend prices, state-run news agency Algeria Press Service reported.

He also went to Qatar where he discussed crude prices and stability of oil markets with the Middle East country’s Prime Minister Abdullah bin Nasser bin Khalifa Al Thani and Energy Minister Mohammed Bin Saleh Al Sada yesterday in Doha, Venezuela’s foreign ministry said in a statement. He’s also is scheduled to travel to Iran and Russia, according to the ministry, while Maduro said the trip would include Mexico.

OPEC members Libya, Venezuela and Ecuador have called for action to prevent crude from falling further. Libya’s OPEC governor Samir Kamal said last month that the group must cut daily output by 500,000 barrels as the market is oversupplied by about 1 million barrels a day. This reflected his personal view, he said at the time.

With oil prices firmly below $80 a barrel, nerves are rattling within the OPEC and calls are mounting for concrete action at the group’s crucial next meeting this month.

The calls center on oil’s worrying lows and what OPEC should be doing to help protect its members’ economies.

Kuwait’s cabinet and the country’s Supreme Petroleum Council held an “extraordinary” joint meeting Sunday to consider measures to stop the slide in prices.

According the official KUNA news agency, the meeting “discussed the steps that have to be taken on all levels…including having consultations with fellow OPEC member states for maintaining interests of all parties”.

This comes as a surprise considering the country’s earlier statements of confidence in a rebound of prices and that there was no reason to panic Only last week Kuwait’s oil minister stressed that he did not believe there would be a reduction in output by OPEC when its 12 members gather in November 27 in Vienna.

Also Sunday Iran’s oil minister criticized countries of trying to justify keeping oil production at the current level – which were set before countries such as Iran were allowed to return to selling oil in the global marketplace.

Iran is already tapping its sovereign wealth fund to mitigate the impact of the oil price slump.

Earlier this month, OPEC Secretary General Abdulla El-Badri told CNBC in an exclusive interview he saw oversupply at “not more than 600,000-700,000 barrels a day”.

Venezuela, Ecuador and Libya have already contributed to the debate by saying that a cut was appropriate.

Meanwhile, Brent crude fell by more than $1 towards $78 a barrel on Monday after Japan, the world’s fourth-biggest crude importer, slipped into recession and as Saudi Arabia reiterated the oil price should be left to supply and demand.

The market is waiting to see whether the OPEC will cut production at its next meeting. The Atlantic Basin is still awash with unsold barrels partly due to the continued growth in U.S. shale oil production, whilst demand growth remains weak.

Brent crude was down 91 cents to $78.50 a barrel in mid-morning trade on Monday. The contract for January delivery closed $1.92 higher on Friday.

U.S. crude for December delivery was 71 cents lower at $75.11 a barrel, after settling $1.61 higher on Friday.

The market bounced on Friday after Brent hit a fresh four-year low of $76.76 a barrel, triggering a renewed focus on OPEC’s ability to reach an agreement to cut production.

Japan is now in a recession, raising fresh concerns about global growth and prompting a sell-off in stock markets in Asia and Europe.

Within OPEC members, Natixis analysis show members like Kuwait are not worried about lower prices and are therefore talking down a price cut.

However, Nigeria’s 2014 budget is predicated upon output of 2.39 million barrels a day (MBD) at a price of $77.50/bbl. Its output is running below the target and if the price remains lower, its budget will go haywire and hence the country is in favor of a price cut.

Nigeria’s July-September oil output fell 3% quarter on quarter to an average 2.15 million b/d, National Bureau of Statistics data showed Monday.

With oil being the nations’ economic mainstay, the country’s growth rate fell to 6.23% in the third quarter, from 6.54% in the April-June period, the agency said.

“The oil sector experienced production challenges,” it said.

Large-scale oil theft still poses a major challenge to oil production and exports, with output disrupted by thieves vandalizing pipelines and other production facilities.

On Sunday, Nigeria’s special military unit in the Niger Delta, the Joint Task Force disclosed that on Friday it had arrested 10 suspected thieves who had laid siege to oil facilities in Brass River near the Eni-operated Brass Oil Export Terminal, siphoning crude into vessels.

Crude oil theft is a growing problem for Nigeria; with estimates the country loses $6 billion revenue per year.

Armed gangs are tapping crude from pipelines either for local refining or to be moved to barges for sale to tankers waiting off the coast.

The Nigerian National Petroleum Corporation(NNPC) and the JTF said last month cases of oil theft had been rising despite government efforts to curb the crime, pumping money into security agencies to battle the thieves.

The finance ministry said in October Nigeria’s gross revenue in September fell 20% month on month to Naira 502 billion ($3.2 billion), partly due to the closure of trunk lines and pipelines at oil export terminals.

Faced with this situation and falling oil prices, the federal government has moved to introduce austerity measures geared towards cushioning its impact on the economy.

The Minister of Finance and the Co-ordinating Minister for the Economy, Dr Ngozi Okonjo-Iweala, announced the measures in Abuja. This include Nigerians paying tax on luxury goods, a reduction in public expenditures and international travels by public servants among others.

 

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