Home Oil and Gas Oil slumps 6% amid OPEC+ deal, increase Nigeria’s crude oil output to 1.8mbpd

Oil slumps 6% amid OPEC+ deal, increase Nigeria’s crude oil output to 1.8mbpd

by Business News Report

Oil prices plunged more than $4 a barrel on Monday, headed for its worst day since March, after OPEC+ agreed to boost output, stoking fears of a surplus as rising COVID-19 infections in many countries threaten demand. Member countries of the oil cartel, OPEC+ agreed to increase oil output by an initial 400,000 barrels per day. The decision increases Nigeria’s oil output from about 1.4 million barrels per day to 1.8 million barrels per day by April 2022. In a press release OPEC said it had decided on the following: “Adjust upward the overall production by 0.4 mb/d on a monthly basis starting August 2021 up until phasing out the 5.8 mbpd production adjustment, and in December 2021 assess market developments and participating countries’ performance. 

“Continue to adhere to the mechanism to hold monthly OPEC and non-OPEC Ministerial Meetings for the entire duration of the Declaration of Cooperation, to assess market conditions and decide on production level adjustments for the following month, endeavouring to end the production adjustment by the end of September 2022 subject to market conditions. Adjust, effective 1st May 2022, the baseline for the calculations of the production adjustments according to the attached table. Reiterate the critical importance of adhering to full conformity and taking advantage of the extension of the compensation period until the end of September 2021. “Compensation plans should be submitted in accordance with the statement of the 15th OPEC and non-OPEC Ministerial Meeting. This decision potentially increases Nigeria’s crude oil output to 1.829 million barrels per day by April 2022, a potential game-changer for the economy. 

According to details of the deal, OPEC will initially increase output by an additional 400,000 barrels a day each month from August, and then ramp up its output by about a total of 2 million barrels per day in total, by the end of the year. The monthly output increases will subsist until December 2022. The ten major OPEC member countries will increase their capacity from 26,683 million barrels per day to 27,815 million barrels per day. Non-OPEC members will move from 17,170 to 17,670 million barrels per day. In total OPEC+ member countries have agreed to go from 43,853 million barrels per day to 45,454 million barrels per day respectively.

Meanwhile Brent crude lost $4.23, or 5.8%, at $69.36 a barrel while U.S. oil futures were down $4.56, or 6.4%, at $67.25 a barrel. The Organization of the Petroleum Exporting Countries and their allies, known as OPEC+, reached a compromise on Sunday to increase supply from August to cool prices, which had hit their highest level this month in more than two years. “We still face a significant deficit in terms of supply versus demand, but for now, the additional barrels are seen as enough to deflate and kill the recent rally,” said John Kilduff, a partner at Again Capital in New York. Major banks have steadfastly argued that the market will continue to rally, with Goldman Sachs reiterating on Monday that it sees more upside to the market. It said the OPEC agreement was in line with its view that producers “should focus on maintaining a tight physical market all the while guiding for higher future capacity and disincentivising competing investments.”

However, the OPEC deal removes more of the supply curbs that have been a cornerstone of the market for a year. At present, OPEC+ is keeping about 5.8 million crude barrels per day out of the market, a figure that will drop by 2 million bpd by year-end. “Longer-term, free and additional production capacities from OPEC+ countries are the key reason why we see oil moving lower again,” said Julius Baer analyst Carsten Menke. A popular spread trade in the oil market – between the first two December futures contracts, December 2021 and December 2022 – narrowed to the smallest since June 1. The trade is dominated by the view of the economic outlook, forward demand, supply and stocks, and a narrowing spread indicates that traders expect supplies to rise by the end of 2021.

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