The seemingly
uncontrollable fall in oil prices has largely affected the economic status of
some members, including Nigeria since 2014, but the test of strength within
OPEC appears to have overshadowed the need for urgent and strategic decision
that could reduce the tension.
Oil prices have fallen by
more than 70 per cent over the last 18 months, mainly as a result of
oversupply. The cartel, in a policy championed by Saudi Arabia, had decided to
keep production unchanged to avoid domination of the emerging shale oil. Now
the prices have slid to critical level. Benchmark Brent crude futures slipped
yesterday below $28 a barrel to a 12-year low, while the OPEC basket was $25
per barrel.
Indeed, the cartel is
perceived to have divided into two main groups over the unresolved puzzles of
cutting oil productions due to the oil glut in the market. The two main camps:
One has nine members ranging from Algeria to Venezuela who want to scrap the
Saudi-led price war with non-OPEC producers and the giant four called the
Arab-block.
The current challenge
before the cartel is that the four who want to continue the fight- Saudi
Arabia, Kuwait, Qatar and the UAE – hold nearly all of OPEC’s spare capacity,
so their votes inevitably carry more sway.
The percentage share of
OPEC oil showed that Venezuela has the largest with 24.9 per cent; Saudi
Arabia, 22.1 per cent; Iran 13.1 per cent; Iraq, 11.9 per cent; Kuwait, 8.4 per
cent; UAE, 8.1 per cent; Libya, 4.0 per cent; Nigeria, 3.1 per cent; Qatar,2.1
per cent; Algeria, 1.0 per cent and Angola 0.7 per cent among others.
Also often overlooked is
that OPEC only works by unanimous decision – making the effort to corral all
members incredibly difficult at a time when their economies are hurting badly.
Meanwhile, report published
by Wood Mackenzie recently indicated that 68 big oil investment projects have
already been mothballed due to cost implications on production.
Kuwait and Saudi Arabia are
estimated to have the lowest cost of production at $8.5 per barrel and $9.9 per
barrel respectively, followed by Iraq, UAE, Iran, Russia, Algeria, Venezuela,
Libya and Nigeria in hierarchical order.
Nigeria’s cost of
production is presently estimated at $31.5 per barrel with capital expenditure
– $16.20 and operational expenditure at $15.30. This, according to experts has
put producers on their toes as they strategize to cut cost so as to sustain
production.
According to current
estimates, more than 80 per cent of the world’s proven oil reserves are located
in OPEC Member Countries, with the bulk of OPEC oil reserves in the Middle
East, amounting to around 66 per cent of the OPEC total. OPEC’s proven oil
reserves currently stand at 1.2 trillion barrels, while the non-OPEC producers
have 286.9 billion barrels reserve (about 19 per cent of the market).
Minister of State for
Petroleum and OPEC President, Dr.
Emmanuel Ibe Kachikwu, had disclosed that some members of the cartel were
moving for an emergency meeting to curtail the sliding prices, but others,
especially the Arab-block have moved to quash talk of a potential emergency
meeting.
The UAE Energy Minister, Suhail bin Mohammed al-Mazroui, does
not see the need for emergency meeting, saying that the current OPEC strategy
was working.
He said: “I don’t think it’s fair to ask OPEC to unilaterally cut
production.” The UAE minister who appears to be on the Saudi’s side said
low-cost producers within OPEC should not attempt to prop up prices for Russia,
and other non-OPEC producers.
“If we do
something artificial, I don’t think that’s going to last. I’m not convinced
OPEC alone can change or can solely unilaterally change this strategy just
because we have seen a low in the market,” Mazroui
said.
Mazroui added that while
the first half of 2016 would be tough for the oil market, there would be a
gradual recovery later in the year, aided by an expected drop in non-OPEC
production.
Besides, the end of
economic sanctions against Iran could shake up oil markets, as the nation is
ready to pump about 500,000 barrels per day. U.S. and European Union sanctions
on Tehran were finally lifted at the weekend restoring Iran’s access to world’s
markets. Iran has been gearing up for this moment for months and could soon
return to the top ranks of global oil producers, unless the fresh sanction
slammed by the United States is sustained.
Kachikwu did not specify
which OPEC members wanting a meeting and said any such gathering would be in
February or March. OPEC’s next scheduled meeting is around June.
He said Nigeria should not
be considering cutting production at this time but rather look inward to how it
could revive refineries and other domestic utilisation options.
The OPEC helmsman said it
is very important for OPEC to dialogue at this critical period so that the
market can be strengthened.
Kachikwu, who is also the
president of OPEC had earlier noted that the planned emergency would be held
between February and March, but Nigeria’s presidency at OPEC would cease by the
end of this month, indicating that he could not coordinate such meeting. According
to him, Qatar would take over the mantle of leadership at OPEC from next month
(February, 2016).
The oil minister believed
that the recent turbulent in the sector might be a blessing in disguise for
Nigeria, as this would allow for the nation to consider other viable options
and exploit them accordingly.
“Hard times bring
new innovation and good opportunities, God’s willing the hard time for Nigeria
will push it to greater heights,”
he said. (Source: Guardian)
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