The Nigerian National Petroleum Corporation (NNPC) has said that following crude oil price decline at the international market, which is making a slow but steady climb towards pre-COVID 19 levels, it is optimistic that global oil market will achieve full recovery by third quarter of 2021
At the wake of the price falls ignited by COVID-19, both the World Bank and the International Monetary Fund warned that the global economy was headed towards another recession.
The Nigerian economy, which is 80 per cent dependent on oil, has been massively impacted, with government undertaking adjustments of the 2020 budget benchmarks.
According to the Nigeria’s national oil corporation, if the oil market indeed recovers by the third quarter of 2021, indications are that Nigeria’s economy may be making a quicker recovery than what most economic analysts are anticipating.
Speaking to Bloomberg last Tuesday, the Group Managing Director of the NNPC, Mele Kyari, said if the current situation was sustained, the oil market might attain full recovery by the third quarter of next year. He said Nigeria sees the OPEC+ output cut initiative as an opportunity to wait for the rebalancing of the oil market, to halt her continued spending to produce oil for free due to supply-demand imbalance.
“We have started seeing signs that the output cut initiative is working and achieving its target objective by pulling down the supply and creating a situation that will bring up price to a level we can recover our cost and make some marginal profit to continue in our business,” he said.
With the continuous rise in crude oil price in recent days, he expressed optimism that by the end of June or latest mid-July, the discount offered to buyers to take Nigeria’s oil would no longer be necessary.
Although the NNPC boss said Nigeria experienced “marginal under-compliance” initially with the OPEC output cut quota by less than 100,000 barrels per day, the country is currently at an over-compliance position in the last 10 to 15 days.
According to him, by the end of June, or mid-July in the worst case scenario, Nigeria would see full compliance with the OPEC output cut quota. To sustain the price rally in the market, Mr Kyari said the expectation was for all OPEC member-countries to continue to cooperate to bring some normalcy before the end of the year, and see a flat out price at $42-$45 per barrel at the end of the year.
He noted that the short-term response of the market as a result of the OPEC+ intervention has been positive, with prices recovering from below $22 per barrel in April to the current level of $40 per barrel. If the current level of $40 per barrel for the Brent crude oil is sustained, he said, the potential was there for it to grow to an average of between $42 and $45 per barrel by the end of the year.
“I don’t think we will see any $30 per barrel in the near future if this situation is sustained. Everybody is seeing the benefit of creating the balance in the market. It is in the interest of all members to comply. Nigeria’s decision to comply with the OPEC output cut deal was a decision we made as a country, and not influenced by any other country’s decision on the matter,” he said.
On cost of production, Mr Kyari said with some NNPC assets producing oil at less than $30 per barrel, “selling at an average of $40 and $42 per barrel leaves Nigeria in a comfort place.”
Kyari informed that at the moment, NNPC is already cutting cost in its operations, with a target of bringing the cost down to $10 per barrels by the end of 2021.
To ensure the cost-cutting is industry wide, the NNPC boss said the corporation has always insisted that all its partners and suppliers also cut their costs by 30 to 40 per cent.
Chibisi Ohakah, Abuja
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