By Babajide Okeowo
After days of disagreement, the Organization of the Petroleum Exporting Countries (OPEC) and a group of Russia-led oil producers have finally agreed to increase output by 500,000 barrels a day from next month.
OPEC originally planned to decide the output goals on Monday, but differences between countries forced the cartel to postpone the decision until Thursday; chief among concerns was that Saudi Arabia and the United Arab Emirates wanted overproducing countries like Russia and Iraq to lower their output more in the first quarter.
The group will also hold monthly meetings to sign off on further adjustments.
Producers have looked to ramp up supply as vaccine optimism helps drive oil prices up to a seven-month high after excess inventories drove prices down to negative territory at the height of the pandemic.
The modest output increase boosts the current limit of 7.7 million barrels per day (from peak levels before the pandemic of 9.2 million barrels per day) and should help boost supply in anticipation of heightened demand while keeping inventory levels moderated to avoid another oil price disaster.
On the homefront, CSL Research Company believes the modest increase in output and the prospect of effective COVID 19 vaccines will lead to a stable and positive price for crude oil. This in turn is expected to bode well for Nigeria.
“Looking ahead, we expect the modest increase in OPEC+ production and the prospects of the discovery of effective vaccines to remain positive for oil prices in the short term if production cuts are adhered to. We however expect the rally in oil prices to be capped by subdued growth in the global economy which would continue to limit the pace of recovery in oil demand.
Coming home to Nigeria, a combination of both higher oil prices and lower production cuts is needed to fund the country’s 2021 budget which is predicated on a production volume of 1.86mpd and oil price of US$40 per barrel.
Amidst a recession, the hope of an economic rebound is largely hinged on a sustained rebound in crude prices as the country has suffered a significant slump in revenue largely due to weak oil revenue.
Furthermore, the economy continues to face severe dollar shortages due to lower oil receipts which continue to pressure the nation’s FX reserves” CSL Research pointed out.