Experts have said that the successful resolution of OPEC with its allies to cut down on oil output will be favourable to the Nigerian economy.
OPEC on Friday succeeded in liaising with other oil supply giants who are non-members to cut output as Iran gave OPEC the green light on to reduce oil output by around 0.8 million barrels per day from 2019 after finding a compromise with rival Saudi Arabia over a possible exemption from the cuts, an OPEC source said.
The news swiftly impacted oil prices which jumped more than 5 percent on Friday on the output cut which is expected to drain global fuel inventories and support the market.
A professor of Political-Economics at University of Ibadan, Femi Otubanjo in a chat with InsideBusiness stated that the cut in supply would create artificial scarcity which will halt and reverse the free fall in the price of oil that has been experienced in recent times.
“The ability of OPEC to resolve to supply cut with its members and Iran among other oil giants is a good omen for Nigeria. Considering the fact that revenue from oil represents a significant proportion of Nigeria’s revenue. So with this, there will be artificial scarcity and thereby stabilize and improve oil prices which will be a immense benefit for Nigeria. Increased revenue will mean the government will have improved foreign reserve, thereby there would be improved naira, also, there is more funds to undertake necessary capital expenditure among other variables that would foster economic growth” the University Don said.
Aruna Kebira, stockbroker and analyst with GlobalView Capital Limited in a chat with InsideBusiness said the peg in supply is favourable to Nigeria quite essentially as it will aid the Buhari led Federal Government in funding for the remainder of the 2018 budget which is far from being fully executed and it will also create a quite easy foundation for the 2019 budget and economy at large.
“The cut opens the opportunity to improve the budget benchmark and overall revenue of the government for 2019. There’s also an implication for the naira because oil receipt remains the major source of our foreign currency supply as a nation meaning that an increased oil price has positive impacts for the overall FOREX supply to the country. That also has impacts for the ability of the central bank of Nigeria (CBN) to meet FX demands,” he said.
He said this development however, presents a golden opportunity for the government to develop alternative revenue sources.
“We need to further diversify the economy away from oil and it goes beyond a statement. We need actions; the government needs to create avenues for more economic activities to happen like diversifying the tax revenue of the government beyond oil. You can’t expect to generate more non-oil tax without having an increase in the economic activity,” he added.
In a swift response to the agreement to cut output which OPEC masterminded, oil prices jumped more than 5 percent on Friday as big Middle East producers in OPEC agreed to reduce output to drain global fuel inventories and support the market.
Benchmark Brent crude oil rose $3.48 a barrel to a high of $63.54 before easing back to around $63.20 by 1450 GMT. In early trade, Brent had fallen below $60 when it looked as if oil exporters might not agree.
U.S. light crude rose $2.69 to a high of $54.18 a barrel before slipping to around $53.80.
Prices fell almost 3 percent on Thursday after the Organization of the Petroleum Exporting Countries ended a meeting in Vienna with only a tentative deal to tackle weak prices. Talks with other producers were held on Friday.
Oil prices have plunged 30 percent since October as supply has surged and global demand growth has weakened.
But Iran gave OPEC the green light on Friday to reduce oil output by around 0.8 million barrels per day from 2019 after finding a compromise with rival Saudi Arabia over a possible exemption from the cuts, an OPEC source said.
OPEC is seeking support from non-OPEC Russia for supply cuts. Russian Energy Minister Alexander Novak returned to Vienna on Friday after discussing the issue with President Vladimir Putin.
A Russian Energy Ministry source said Moscow was ready to contribute a cut of around 200,000 bpd and sources said other non-OPEC producers could contribute a further 200,000 bpd of output cuts, bringing an overall cut to 1.2 million bpd.
“(A cut of) 1.2 million bpd, if implemented promptly and fully, should be enough to largely attenuate, but not eliminate, expected implied global inventory builds in the first half of next year,” BNP Paribas strategist Harry Tchilinguirian told Reuters Global Oil Forum.
“Given how much expectations were downplayed yesterday, this comes as a welcome surprise for the market,” he added.
Oil output from the world’s biggest producers – OPEC, Russia and the United States – has increased by 3.3 million bpd since the end of 2017 to 56.38 million bpd, meeting almost 60 percent of global consumption.
The surge is mainly due to soaring U.S. oil production, which has jumped by 2.5 million bpd since early 2016 to a record 11.7 million bpd, making the United States the world’s biggest producer.
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