Member countries of the oil cartel, OPEC have agreed to increase oil output by an initial 400,000 barrels per day. The decision increases Nigeria’s oil output from about 1.4 million barrels per day to 1.8 million barrels per day by April 2022.
In a press release seen by Nairametrics, OPEC announced they had decided on the following:
- Adjust upward their overall production by 0.4 mb/d on a monthly basis starting August 2021 up until phasing out the 5.8 mbpd production adjustment, and in December 2021 assess market developments and Participating Countries’ performance.
- Continue to adhere to the mechanism to hold monthly OPEC and non-OPEC Ministerial Meetings for the entire duration of the Declaration of Cooperation, to assess market conditions and decide on production level adjustments for the following month, endeavouring to end the production adjustment by the end of September 2022 subject to market conditions.
- Adjust, effective 1st May 2022, the baseline for the calculations of the production adjustments according to the attached table.
- Reiterate the critical importance of adhering to full conformity and taking advantage of the extension of the compensation period until the end of September 2021. Compensation plans should be submitted in accordance with the statement of the 15th OPEC and non-OPEC Ministerial Meeting.
This decision potentially increases Nigeria’s crude oil output to 1.829 million barrels per day by April 2022, a potential game-changer for the economy.
According to details of the deal, OPEC will initially increase output by an additional 400,000 barrels a day each month from August, and then ramp up its output by about a total of 2 million barrels per day in total, by the end of the year. The monthly output increases will subsist until December 2022.
The ten major OPEC member countries will increase their capacity from 26,683 million barrels per day to 27,815 million barrels per day. Non-OPEC members will move from 17,170 to 17,670 million barrels per day. In total OPEC+ member countries have agreed to go from 43,853 million barrels per day to 45,454 million barrels per day respectively.
A source at the Ministry of Petroleum Resources informed Nairametrics that despite the decision by OPEC to increase production, Nigeria might not witness a jump in crude oil outputs.
“We do not immediately move from current levels to 1.8 million barrels per day. It’s gradual to clear the restricted volume before we rebase to the effective date of April 2022. We still need increased investment in the sector to keep up with the current levels much less ramp up to higher levels,” he revealed, suggesting Nigeria still needs to attract investment in the sector to meet the new production quota.
The Federal Government has suffered a massive decline in its revenues since the crude oil cuts were agreed on last summer after oil prices fell to all-time lows. A combination of protracted low oil, waning demand and OPEC cuts sent the government’s actual revenues against target plummeting by over 27% in 2020.
What this means for Nigeria
Nigeria relies heavily on crude oil and gas exports for over 60% of government revenues and over 85% of its foreign exchange earnings. Thus, an increase in oil prices and output volume should help boost the external reserve positions of the country.
If Nigeria is able to ramp up crude oil sales to the assigned levels of 1.8 million barrels per day, then that will shore up the nation’s foreign debt position, inadvertently strengthening the stability of the exchange rate.