Nigeria Punished For Non-compliance As OPEC Increases Crude Oil Supply

 

The Organization of the Petroleum Exporting Countries (OPEC) and its allies have decided to end its aggressive push for production cut as projected by AllNews. OPEC stated that it will now increase crude oil supply in the market from August next month. Recall that OPEC had taken the path of production cut due to the crash in oil price.

Nigeria Forced To Adhere To Compliance

The production cut was reduced by OPEC from 9.6 million barrels a day to 7.7 million barrels a day from next month.

The decision was taken following a virtual conference between the oil producers.

Meanwhile, countries that didn't comply with the production cut, like Nigeria, Iraq, and others will need to adhere to the initial production cut to fill the gap that the new increase in supply will cause.

While the increase in supply will occur in August, Nigeria and other countries that didn't adhere to the production in May to June 2020, will have to carry on with the production cut of about 842,000 barrels a day cuts into September 2020 to make up for not complying to cut.

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The new decision to increase crude oil supply is expected to rebound the oil price which had been pummeled by the coronavirus pandemic which led to a drop in oil demand. The reduced demand crashed the oil price and it was also affected by the price war between Russia and Saudi Arabia. Since the production cut began, the oil price had been on the rise.

Mele Kyari Rules Out Oil Price Rise, Projects Collapse

Last month, the Group Managing Director of Nigeria National Petroleum Corporation (NNPC), Mele Kyari, doused the hope that the oil price will continue its surge following a rise in the price of the commodity. According to Kyari, the oil price will collapse again as it is only bloated by sentiment.

Kyari said the surge in oil price wasn't influenced by demand, but rather sentiment, and so the price will still decline because production levels are still high and supply will surpass demand. He made this comment while speaking during a weekly programme tagged ‘Half-Time Talk’ organised by a United Arab Emirates-based communication and research firm, Gulf Intelligence, on Wednesday.

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Oil Will Slide Back To Early-March Decline

He projected that at the end of 2020, there would be over 79 million barrels of excess supply, so if there will be balance with supply and demand, then it would in 2021. Kyari stated that the price surge is due to the cut in production, so oil prices will slide back to what it was in March.

"Everyone should know that it is not sustainable as long as the production level remained at the Pre-COVID range. The supply will overshoot the demand in a short time and we will likely slide back to where we were in early March 2020. The recent drive we have seen in the price of crude is largely driven by sentiments than demand because we have not seen the significant rise in the demand. There is no 100% conformity with the cut and that means that the volume is still there. The price jump appears cosmetic to me and if we don’t contain the supply, we could slide to the early March price level."