On Wednesday, October 5, the Organization of Petroleum Exporting Countries (OPEC+) agreed on a 2 million barrels per day (b/d) oil production cut. This is the biggest cut since the start of the pandemic in March 2020.
The decision was taken during an in-person meeting in Vienna – the first since the 2020 Covid-19 pandemic. During the meeting, which lasted for about 30 minutes, OPEC+ decided to adjust downward, the overall production by 2mn b/d, from the August 2022 required production levels, starting November 2022 for OPEC and Non-OPEC Participating Countries.
However, OPEC+ cuts will not be a full 2mn b/d as many members are already below target. 2mn b/d cuts are for countries like Saudi, Iraq, Kuwait, and the United Arab Emirates. For countries that are below target, the cuts will be around 1mn b/d.
Increased fuel subsidy payments
Nigerian Economist, Kalu Aja told Nairametrics that the OPEC+ decision to cut production by 2mn b/d is good for Nigeria. According to him, the country will benefit from the decision if the Nigerian National Petroleum Corporation (NNPC) Limited and other stakeholders can keep the pipelines open.
Nairametrics had earlier reported that the government plans to reopen the Trans-Niger pipeline, after a six-month force majeure.
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Further credence to the likely production hike was given by NNPCL Chief Financial Officer, Umar I. Ajiya in his October 5, 2022 breakdown of the entities’ financials on Arise TV, when he said Nigerians should see a boost in crude oil production by the end of October 2022. This will result from measures taken to clamp down on crude oil thieves including hiring security contractors.
According to Aja, this will lead to increased revenues and close the deficit.
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But on the flip side, Aja notes that subsidy payments on premium motor spirits (PMS) also known as petrol will also increase.
Suggestions on making subsidy payments cheaper
But subsidy payments can be cheaper, according to Aja, in an opinion article.
Implement deregulation of the ecosystem. Let NNPCL or the regulator created by the Petroleum Industry Act (PIA) publish the import quality and grade of PMS to be sold in Nigeria.
Allow all players that want to import and sell PMS in Nigeria to do so at any price they deem fit; in essence, let the market determine the retail prices.
Next, set an income limit for the qualification of subsidy. Attach subsidy to a national identification number (NIN) issued phone and peg it at N5,000 per phone. Since NIN has biometrics, each phone user has an N5,000 limit.
Use the e-Naira for subsidy payment receipts and payments.
This means that the only way to enjoy the cheap Nigeria PMS is to pay with a NIN-enabled phone to an e-Naira wallet at a Nigerian pump. Since the NIN is biometrically secured, it eliminates the possibility of users signing up multiple times.
Other decisions were taken during the OPEC+ meeting
Adjust the frequency of the monthly meetings to become every two months for the Joint Ministerial Monitoring Committee (JMMC).
Extend the duration of the Declaration of Cooperation until the 31st of December 2023
What you should know
OPEC+ disagrees that it is using energy as a weapon with today’s agreement to cut production targets.
Prince Abdulaziz says the actual cut is around 1-1.1 million bpd, saying OPEC+ wants a stable market that does not inhibit investments.
In an opinion post on Twitter, Roger Diwan, the Vice president of S&P Global Commodity Insights said it is possible that the oil market is being weaponized.