The production output of the Organisation of Petroleum Exporting Countries (OPEC) member-countries has recorded its lowest level in nearly 30 years, due to production cuts after demand was heavily impacted by the COVID-19 pandemic. The last time oil production was cut to 22 million barrels a day was during the Gulf War in 1991. 

Last month, OPEC cut production to 22.69 million barrels per day, in an effort to strengthen global prices for the commodity which was struggling with weak demand during a global lockdown occasioned by the pandemic. 

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OPEC leader, Saudi Arabia, has been compliant in its production cuts through the month of June. Back home, Nigeria has promised to do its parts in implementing total compliance with the cuts. 

Production cuts from OPEC countries and other allies such as Russia (OPEC+) have helped to revive the price of Brent Crude to over $40 since May, compared to record lows in the month of April. 

While the Gulf nations have implemented further cuts, Nigeria, Angola and Iraq are still lagging in full compliance, meeting only 77%, 83%, and 70% (respectively) of their quotas. Saudi Arabia reduced production by 1.13 million barrels to 7.53 million a day in June. 

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Other members like Venezuela pumped only 340,000 barrels a day in June, even though they are exempted from cuts as the country is dealing with a series of issues from US sanctions to a severe economic recession. 

Meanwhile, Russia hit its target quota for the second month in a row as countries outside the OPEC also cut production due to falling demand impacted by the COVID-19 pandemic. 

Brent Crude prices gained on Thursday’s early trading session, reversing previous losses recorded at Asia’s trading session. This was propelled by a sharp drop in oil stockpiles outweighing concerns that a spike in U.S. coronavirus infections and revived lockdown measures in California could stall recovery in fuel demand. 

Brent crude (LCOc1) gained 0.57% to trade at $42.27 a barrel 10.37 am local time, after gaining 1.8% yesterday. 

Brent crude is the leading global benchmark for Atlantic basin crude oil. The international benchmark is used to set the price of crude oil of about two-thirds of the world’s traded crude oil including that of Nigeria. 

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Chief Global Market Strategist at AxiCorp, Stephen Innes, spoke about the ultimatum the Saudis are giving other producers towards stabilizing crude oil price. He explained that “The price falls were further compounded by warnings from Saudi Energy Minister Prince Abdulaziz who, in no uncertain term, issued a stern ultimatum to OPEC+ laggards to comply with the cartel’s recent production agreement or face a price war. The Kingdom is not going to do the bulk of the heavy lifting while other member states are not 100% compliant.” 

Jeffrey Halley of OANDO in a note to Reuters also explained that, “The drop in stockpiles, reports of oil moving out of floating storage, and strong manufacturing PMI data across the globe formed a constructive case for oil prices rising.” 

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“The overnight price action and EIA data have temporarily lifted the COVID-19 gloom that has capped oil prices all week,” he added. 

Money market experts are uncertain over what to expect as the second half of the year takes off. This uncertainty is specifically hovering over the treasury bills and OMO (Open Market Operations) side of the market, according to Constance Onyia, a Fixed Income Dealer with Access Bank Plc.

Speaking to CBN Africa, yesterday, about what is happening in the money markets and what to expect during the second half of the year, Onyia said the CBN’s changing strategy has made it difficult to be predictive.

“Actually, we are expecting OMO auction tomorrow. But being that CBN’s strategy has changed (in the last two months they’ve not been rolling over all the maturities and sometimes they don’t even come for OMO), we don’t know what to expect; if there will be OMO auction tomorrow or not. And even if there’s an auction, they might no rollover everything on offer. So, we see that the strategy has changed a bit and we don’t know what to expect for the month or for the second quarter,” she said.

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Meanwhile, when the Head of Fixed Income Trading at United Bank for Africa (UBA) Plc, Bankole Odusanya, was asked the same question, he said “the Debt Management Office has a calendar and what is on play is simply that the exact amount that is maturing is what they plan to offer. If we saw that they increased the amount they wanted to offer, then you could be tinkering with your pricing. So, the amount that is maturing by-weekly (on Thursdays) is what they plan to raise.”

In the meantime, liquidity in the Nigerian banking system is said to be below N100 billion. And because this liquidity level is not excessive, experts do not expect the CBN to come in heavily with OMO maturities. As Odusanya pointed out, the amount of OMO bills by the CBN has reduced significantly over the last few weeks, even as the apex bank now relies more on Cash Reserve Ratio (CRR) to control liquidity.

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You may watch both interviews with Onyia and Odusanya by clicking here and here.