A ministerial committee of OPEC moved on Monday to cap Nigerian oil output at 1.8m barrels and called on several members to boost compliance with production cuts to help clear excessive global stocks and support flagging prices.
The committee did not back capping Libyan output as it said its production was unlikely to exceed 1 million bpd in the near.
The monitoring committee, known as JMMC and which met in the Russian city of St Petersburg, did not give the time-frame for when this would happen, saying it would track Nigerian production patterns in the next weeks.
Brent oil prices rose about 1 percent at about $48.50, helped by news of a cap on Nigeria and by comments from Saudi Energy Minister Khalid al-Falih that the kingdom’s exports would fall to 6.6 million bpd in August as demand at home was rising, effectively representing a cut of 1 million bpd year-on-year.
In December, OPEC agreed with several non-OPEC producers led by Russia to cut oil output by a combined 1.8 million barrels per day (bpd) from January 2017 until the end of March 2018 but Nigeria and Libya were exempted.
Rising output from U.S. shale producers has offset the impact of the output curbs, as has climbing production from Libya and Nigeria.
It is unclear when the cut will kick in and what impact it will have on Nigeria’s revenues and FX earnings should limit be enforced.
The Street Journal reports that the Nigeria’s 2017 budget predicated on a crude oil production target of 2.2 m barrels per day at a benchmark price of $44.5 per barrel would be at a great risk of poor implementation due to paucity of funds. Implementation of the 2017 budget recently passed by the Senate may be a huge challenge, following the OPEC’s decision to cap Nigeria’s oil output at 1.8 m barrels per day.
President Muhammadu Buhari presented the 2017 Appropriation Bill to the National Assembly on Dec. 14, 2016, with projected oil revenue at N1.99 trillion, on price benchmark of 42.5 dollars per barrel.
The President had also presented the Medium Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP) with same price benchmark.
The MTEF and FSP were designed to serve as Nigerian’s fiscal framework from 2017 to 2019.
But, the Senate, while approving the MTEF and FSP fixed the oil price benchmark for 2017 at 44.5 dollars per barrel but retained the N305 to a dollar exchange rate proposed by the executive.