The agreement by the oil producing nations to cut about 2 million barrels of crude oil off the market commenced yesterday giving hopes for commodity-reliant nations like Nigeria of more revenue in 2017.
Both OPEC and non-OPEC members have agreed to cut production as the international market was believed to be flooded in 2016.
The 13-member Organisation of Petroleum Exporting Countries (OPEC) on November 30, in Vienna rectified their Algiers plan to commence a cut of 1.2 million barrels of oil by January 1, 2017, a move supported by the non-OPEC members where they also agreed to cut about 558,000 barrels in December, 2016.
Russia, the biggest oil exporter outside OPEC, alongside 10 other countries such as Mexico, Oman and Azerbaijan, agreed on the deal in Vienna.
Reuters said Brent rose 52 percent in 2016 and WTI climbed around 45 percent, the largest annual gains since 2009, when the benchmarks rose 78 percent and 71 percent respectively.
Oil prices have slumped since the summer of 2014 from above $100 a barrel. The price rout, due to an oversupply thanks in part to the US shale oil revolution, was accentuated later that year when Saudi Arabia rejected any deal by OPEC to cut output and instead fought for market share. OPEC produced about 33.60 million barrels last year.
Professor of Economics, Ode Ojowu, recently urged the federal government not to be deceived by the rise in oil price and abandon the diversification of the economy, saying the money from crude oil sales was not reliable and very unpredictable.
The United States Energy Agency said OPEC member countries produced about 40 percent of the world’s crude oil. Equally important to global prices, OPEC’s oil exports represent about 60 percent of the total petroleum traded internationally. Because of this market share, OPEC’s actions can, and do, influence international oil prices.
In particular, indications of changes in crude oil production from Saudi Arabia, OPEC’s largest producer, frequently affect oil prices.
The OPEC Secretary General Mohammed S. Barkindo told Daily Trust recently that most analysts did not project that “the shale revolution that swept across North America, particularly the United States, would bring supplies to such very high levels that we saw. And of course OPEC member countries ramped up production in 2014 in order to stabilise prices. The joint action from both sides raised supply to very high levels and began to impact on stocks on inventories.
“So those inventories started rising gradually. In the industry we have a five-year average and once stocks are above those five-year averages, then prices begin to reduce.”
He said the focus now is how to rebalance the market and “to do this, we have to withdraw supplies to the market in order to accelerate this stock growth, to restore this balance and it is only then that you will be able to achieve the equilibrium price,” Barkindo said.