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Published On: Thu, Sep 18th, 2014

Dwindling oil prices and pitiful state of Nigeria’s economy

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Mrs. Diezani Alison-Madueke

Mrs. Diezani Alison-Madueke

By Ese Awhotu

The issue of oil prices has become a subject of international discourse, with fears that the sinking oil prices could affect some nation’s economies.

Allaying fears of possible negative effects on economies, Secretary General of the Organization of Petroleum Exporting Countries (OPEC),Abdalla El-Badri reiterated Tuesday he was not overly concerned about the current drop in oil prices and said he expected them to rebound by the end of this year.

He also hinted that OPEC may decide to lower its oil output from 30 million barrels per day to 29.5 million.

“I think our target next year will be lower, may be by 500,000 barrels,” El-Badri told reporters at the group’s headquarters in Vienna.

“This is an outlook, this is not a decision,” he said, adding that the decision could be made at the next regular OPEC ministerial meeting scheduled for November 27.

OPEC is an international organization established in 1960 to coordinate crude oil sales and pricing. The original OPEC members were Iran, Iraq, Kuwait, Saudi Arabia and Venezuela, but they were joined later by Qatar, Indonesia, Libya, the United Arab Emirates, Algeria, Nigeria, Ecuador, Gabon and Angola.

The organization members control around two-thirds of the planet’s discovered oil deposits. OPEC handles 40 percent of the world’s oil production and 50 percent of the world’s oil export

The Bank of Russia had on Tuesday expressed fears that the ruble and the Russian economy could be hit by sliding prices for commodities, the country’s key exports if oil prices fail to recover in the midterm.

The ruble hit fresh all-time lows on Tuesday, weakening to 38.93 against the dollar, as banks and companies bought foreign currencies and external markets remained largely closed to Russian borrowers. A drop in the price of Brent crude to $98 per barrel from above $115 three months ago has added to downward pressure on the ruble.

In a quarterly report on its monetary policy, the central bank said that it forecasts prices for Urals crude blend, which usually trades a bit lower than Brent, to recover above $100 per barrel in the next few quarters.

Similar fears have been expressed in other countries including Nigeria where oil is the mainstay of the economy.

But OPEC member, Algeria toiled the line of the OPEC Secretary General. Its Energy Minister, Youcef Yousfi said, “Algeria believes current oil prices are not a matter for concern and will not have a “significant” impact on market fundamentals.

Brent crude prices sank to a 26-month low this week on rising supplies and signs of slower demand growth in China and Europe, but prices rallied after OPEC said it could trim its 2015 output target.

“The current prices do not constitute a particular concern within oil circles,” Yousfi told the official APS news agency late on Tuesday.

He said data indicated no significant imbalance between demand supply and blamed price fluctuations on currency rate trends and stock market operations.

Recently, surging oil production in Nigeria has led output from the Organization of Petroleum Exporting Countries (OPEC) to a one-year high in August, a Bloomberg survey showed.

Production by the 12-member OPEC rose by 891,000 barrels per day (bpd) to 31.033 million, according to the survey of oil companies, producers and analysts.

Last month’s total was revised 80,000 bpd lower to 30.142 million because of changes to the Nigerian and Iranian estimates.

Nigeria, Saudi Arabia and Angola led gains as new deposits came online, security improved and field maintenance programmes ended. Iran and Venezuela were the only members to record production declines.

Nigeria’ production climbed 380,000 bpd to 2.3 million in August, the most since January 2006. It was the biggest one-month gain in data going back to 1989.

Saudi Arabia, the group’s biggest producer, bolstered output by 160,000 bpd to 9.98 million, the highest level since September since it pumped 10 million bpd.

OPEC member, Kuwait has therefore said there is no urgent need for group to meet to discuss sliding oil prices.

Kuwait said there was no need to call an emergency meeting for the producers’ cartel to discuss sliding oil prices after crude hit a 17-month low.

“We do not believe there is a need to call an emergency OPEC meeting” to discuss the drop in prices, Oil Minister Ali al-Omair told reporters at the end of a regular meeting of the oil ministers of the Gulf Cooperation Council (GCC).

“So far, we are confident that prices have not dropped to the extent that makes us call for an emergency meeting,” Omair said.

The minister, whose country pumps around 3.0 million barrels a day, said he did not believe the drop in oil prices was substantial “because the fall was expected as a result of high production especially from the United States.”

“We still believe that oil prices are currently stable despite the slight drop. Prices are likely to rebound ahead of the winter season,” Omair said.

Earlier, Saudi Oil Minister Ali al-Nuaimi played down the drop in oil prices, saying this was not the first time crude prices slump.

“Prices of oil always go up and down so I really don’t know why the big fuss about it this time,” Nuaimi told reporters.

The drop in Brent crude price below $99 a barrel came amid fears of increased production and lower-than-expected demand.

OPEC said last week in a report that demands would grow by 1.05 million barrels per day in 2014 to 91.2 million, trimming 50,000 barrels from the previous outlook.

Demand in 2015 is expected to grow 1.19 million barrels per day, 20,000 barrels a day fewer than before, the cartel said.

Meanwhile, OPEC member, Nigeria is facing crisis, oil workers in country started an indefinite strike Tuesday that could disrupt oil production and exports from the OPEC member, said officials of the unions and state-owned Nigerian National Petroleum Corp.

The unions took the action after failing to resolve a dispute over pensions and other issues.

“Today, we have called our members out to begin an indefinite strike until management addresses our demand for a complete overhaul of the NNPC pension scheme, which in its present form is depriving our members of their full dues,” a spokesman for the NNPC branch of Nupeng and Pengassan oil workers’ unions told Platts.

NNPC’s headquarters in Abuja has been shut to workers and visitors, the union official said.The union spokesman said that if NNPC management failed to meet workers’ demands, “in the shortest time possible, oil export terminals will be shut down.”

NNPC has had difficulty meeting its portion of cash call contributions to funding joint venture operations with its foreign oil partners, a source said.

For pension contributions, the company has fallen Naira 85 billion ($531 million) short, according to the source.

NNPC spokesman Ohi Alegbe said Tuesday morning said the company was prepared to address the workers’ pension concerns and to end the strike.

“NNPC is taking steps to avert a looming industrial action by the corporation’s arm of the National Union of Petroleum and Natural Gas Workers and the Petroleum and Natural Gas Senior Staff Association of Nigeria,” Alegbe said.

“While acknowledging the existence of some funding gaps in the scheme, measures have since been put in place to steadily bridge the funding deficit, which stood at N298 billion in 2010,” he said.

NNPC manages the government’s interest in joint ventures with foreign firms, including Shell, ExxonMobil, Chevron, Eni and Total. It accounts for about 90% of Nigeria’s 2 million b/d of oil production.

NNPC staff monitors and approves crude shipment documents at the terminals in conjunction with industry regulators.

Officials also said Tuesday the NNPC strike could hit gasoline imports and distribution as the corporation accounts for 60% of the Nigeria’s gasoline imports.


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