September 3, 2021/CSL Research

At the OPEC and non-OPEC ministerial meeting (ONOMM) which was held earlier this week, the committee reaffirmed its position to maintain a gradual monthly output increase by 400,000 bpd. The decision of OPEC to stand pat was unwavering, despite the call by Washington to ramp up production of oil faster to tackle a rise in energy costs in the United States.

The committee believes that while the effects of the Covid-19 pandemic continue to cast some uncertainty, market fundamentals have strengthened, emanating from gradual global economic recovery. Also, the meeting welcomed the positive performance of participating countries in the Declaration of Cooperation (DoC), as overall conformity to the production agreement was estimated at 110%. The news seems to sit well with the market, as crude oil prices remain strengthened, currently trading US$73.13/bbl.

Impact on the Nigeria oil sector

Following the advent of Covid and the decision of OPEC + to withdraw supply from the market last year, Nigeria’s crude oil production (including condensate) averaged 1.67mb/d, significantly lower than the psychological level of 2.00mb/d. The impact of this was evident on the recently released Q2 2021 GDP, as growth in the Oil sector weakened by -12.3% from -2.3% in Q1. Nonetheless, we can entirely ascribe the poor performance to just OPEC + cut, as data obtained from NNPC showed that Nigeria’s cumulative oil output loss from terminal shut-in in Q2 2021 amounted to an average of 162.65kb/d with the most shut-ins occurring at the Forcados (45.83kb/d), Qua Iboe (24.62kb/d) and Sea Eagle (18.74kb/d). 

Outlook

Looking ahead, while the continued recovery in global economies portends an upside for an increase in crude oil demand, we think that the market will remain cautiously optimistic owing to nervousness associated with Covid-19 infections, as the Delta strain is on the rise and governments mulling future lockdowns. As such, we do not think there is sufficient legroom for higher crude oil prices. On the domestic front, we think that OPEC’s decision to gradually return supply into the market is positive on Nigeria’s crude production. Thus, we forecast crude oil production (including condensates) of 1.76mb/d in Q3 2021, translating to a 5.4% growth.