Nigeria appears to be the least prepared among OPEC countries to take advantage of a higher oil price regime, should prospects for the global market continue to improve as has been the case in the last three weeks, analysts say.
Blighted by consistent policy failure on the part of government, and the resultant drying up of investment into the oil sector for several years, crude oil production in Nigeria is falling at a time that production is being ramped up by its peers, BusinessDay findings show.
“We are not well prepared, too many interests at microscopic levels. We also have an uphill challenge to convince the international oil companies who are owed billions of dollars in cash call, to trust us enough to invest in the midstream and downstream sectors,” says Ibilola Amao, managing director of Lonadek Consulting.
Nigeria’s crude oil production has remained stuck below budget levels yearly and at the current rate of 1.6m barrels per day, output has fallen from 1.75m in March, with the global oil consulting firm Wood Mackenzie forecasting that production by Africa’s largest producer will average 1.5m per day for the next decade on failed policies.
The forecast comes on a day the global price for Brent crude rose to $45.90 per barrel, as expanding fires in Canada, the world’s fourth largest producer, knocked out about 1m bbl/day of production, according to Goldman Sachs.
While production is being crimped in Nigeria, Saudi Arabia is making the required investment to take output close to record highs in the coming weeks to meet summer demand for power, industry sources say.
While Saudi production has remained steady at about 10.15m bbl/day, ongoing push should see that level rise to 10.5m barrels in the summer months.
The bullish kingdom is now able to lessen discount by 65c/bbl for June sales of Arab light to Asia, according to estimates by Bloomberg.
Reports from Iraq said the war ravaged country is currently exporting an average of 3.43m bbl/day, up from the level of 3.286m in April.
Industry sources say Iraq is pushing ahead with its oil production growth strategy.
In Iran, exports to South Korea have more than quadrupled to 400,000 barrels a day since the international sanctions were lifted in January.
Iran, which seeks $11bn in overseas investment to build three oil refineries, has set an oil output target of 4m barrels per day by March 2017, barely a year after returning from international sanctions which crippled its production infrastructure.
The surge in Iran’s oil sale to South Korea will severely dent the appeal of Nigeria’s oil in Asia, according to analysts.
On the back of the vast improvement in output, Iran now says it may be getting to the point where it is willing to do a deal on capping production.
According to a report by Goldman Sachs Mexico continues to pump out 2.2m bbl/day while also seeking developers to participate in its second power auction which will be held in the third quarter of this year.
In Kuwait, a fellow OPEC country, where the 2016/17 budget is based on an oil price of $25 per barrel, oil production has been ramped back up to 3m bbl/day, following disruptions by a workers strike.
Other reports say Russia oil exports surged in April to just under 5.8m bbl/day, the highest level since at least 2008, as energy customers both from the East and West crave its crude.
A review of the global oil market shows that beyond Canada, the current production disruption follows a long list of production issues globally, including pipeline attacks in Kurdistan, Nigeria, Libya, Colombia; heavy North Sea and Murban maintenance as well as the Kuwait strike.
Even before the Canada fire, these recurring disruptions have steadily displaced between 0.5 and 1.0 mb/d of production since mid-March.
With the ongoing strength in Chinese crude imports, weekly assessments of ex. US oil inventories (Europe, Japan and Singapore) also show draws of 1.6 mb so far in April vs. seasonal builds of 11 mb, which have helped the recovery in oil prices and the strengthening of crude time spreads. Importantly, the impact on the global balance has in large part been offset by the surprisingly large increase in Iran exports of 600 kb/d since early March, with Southern Iraqi exports also reaching a record high in April, up 200 kb/d from March (both heavy crude).
Further, while the disruptions are recurring and have reached their highest level since 2014, they remain transient in nature and create the risk that crude production rises sequentially, especially if OPEC production continues to surprise to the upside.
On the back of these developments, Goldman Sachs now believes that the ongoing large disruptions are helping improve crude oil fundamentals but the key to sustainable further recovery in oil prices continues to be longer lasting decline in non-OPEC production.