After weeks of deliberations and negotiations, including intervention from the United States of America, the Organization of Petroleum Exporting Countries (OPEC) and its allies (OPEC+) finally agreed to a historic cut in crude oil output as part of measures towards tackling the global oil crisis.
The deal, which was reached after their virtual meeting on Thursday, April 9, 2020, will see OPEC member countries cut their output by 10 million barrels per day. Non-OPEC countries will also cut their production output by 5 million barrels per day.
In the meantime, the Nigerian Government has reacted to this development. In a statement issued by the Minister of State for Petroleum, Timipre Sylva, on behalf of the Federal Government, it was noted that Nigeria will adhere to the output cut in order to rebalance and stabilize the global oil market.
The country will join OPEC+ to cut supply by up 10 million barrels per day between May and June 2020, 8 million barrels per day between July and December 2020, and 6 million barrels per day from January 2021 to April 2022, respectively.
As a result of the output cut, Nigeria will now be producing 1.412 million barrels per day, 1.495 million barrels per day, and 1.579 million barrels per day respectively for the corresponding periods in the agreement; as against the 1.829 million barrels per day of dry crude oil that was the reference production in October 2018. This is in addition to condensate production of between 360-460 KBOPD of which are exempt from OPEC curtailment.
However, this agreement awaits the final outcome of the ongoing engagement with Mexico to agree on its full participation.
This historic cut, when finally concluded and implemented, is expected to see crude oil prices rebound by at least $15 per barrel in the short term.
This is is also expected to help increase the possibility of the Federal Government exceeding the adjusted budget estimate that was just sent to the National Assembly with the reviewed crude oil price put at $30 per barrel and a crude oil production estimate of 1.7 million barrels per day.
The rebound price is expected to lead to an additional $2.8 billion dollars in revenue for the Federation. This will help to bring some much-needed respite to Nigeria, helping to mitigate the revenue crisis that it is currently facing.
In addition, all planned industry development projects will still progress as they will be delivered before the termination of the 9th OPEC/Non-OPEC Ministerial Meeting Agreement on adjustments in April 2022.