Following Tuesday’s meeting between President Muhammadu Buhari and the ruler of Saudi Arabia, King Salman Bin Abdulaziz Al Saud, during which they both committed to work towards a stable oil market and a “rebound of oil prices”, the Nigerian and Qatari governments have reached out to Saudi Arabia and Russia, the world’s two biggest oil producers and exporters, to cut oil output.
A presidency source informed THISDAY that the decision to push for
production cuts stemmed from the lukewarm reception by the markets to
last week’s news of Russia and Saudi Arabia’s decision to freeze oil
output as January levels.
He said the Nigerian government, while welcoming the decision to cap
output by Saudi Arabia and Russia, the announcement was insufficient to
raise crude prices due to the supply glut in the market.
He said: “By OPEC estimates, there is an excess inventory of some 1
million barrels per day, so the objective it to convince Saudi Arabia
and Russia to each cut production by at least 500,000 barrels per day in
order to lift prices.
“We are pushing for this because even though Iran, which is currently
producing about 500,000 per day and is attempting to ramp up production
to pre-sanction levels, we all know it will take some months before it
can increase production and exports to 1 million barrels per day due to
the absence of investments when the sanctions were in place over their
nuclear programme.
“So the Minister of State for Petroleum, Dr. Ibe Kachikwu, is reaching
out to Russia through back channels to go beyond the output freeze by
taking 500,000 barrels off the market, while his counterpart in Qatar is
talking to the Saudis to do likewise.
“The target is to remove 1 million barrels per day from the markets to
support prices and see if oil can stabilise at $50 per barrel.”
The presidency official disclosed that the reason Russia and Saudi were
being targeted was because they are the largest producers and can
afford production cuts in contrast to smaller producers.
Buhari is scheduled to visit Qatar before the end of this week and is
expected to hold talks with the country’s ruler on the issue.
However, attempts to get Saudi Arabia and Russia to cut output could
prove to be a hard sell, as Saudi Arabia, which has remained adamant
about retaining market share and taking out costlier US shale oil
producers, on Tuesday again ruled out production cuts by OPEC.
The kingdom’s oil minister, Mr. Ali bin Ibrahim Al-Naimi, who spoke at
the 35th annual HIS Energy CeraWeek convention holding in Houston,
Texas, said keeping production at the January levels was the beginning
of a long process to raise prices but restated that member countries
would not cut production even if they say they would, according to USA
Today.
“If we can get all of the major producers to agree not to add
additional barrels, then this high inventory we have now will probably
decline in due time.
“It is not like cutting production. That is not going to happen because
many countries are not going to deliver. Even if they say they will cut
production, they will not deliver.
“There is no sense wasting our time seeking production cuts. That will not happen,” he said.
Al-Naimi, whose remarks on oil often moves the markets, also said that he was not concerned about global demand for oil.
“The fact is that demand was and remains strong,” he said. “You can
argue over small percentage falls and rises but the bottom line is that
the world demands and gets more than 90 million barrels per day of oil.
In the long-term this will increase. So I have no concerns about demand.
That’s why I welcome new additional supplies, including shale oil.”
However, as Nigeria continued with its push to get the oil heavy
weights to agree to production cuts, the naira sustained its rise on the
parallel market wednesday, when it climbed to N300 to a dollar at the
end of business in Lagos, stronger than the N310 at which it sold on
Tuesday.
Forex dealers and currency analysts once more attributed the
significant gains on the parallel market to excess supply of the
greenback in the market.
The latest appreciation of the naira, which fell to an all-time low of
about N400 to a dollar last week, has boxed a lot of speculators into a
corner.
THISDAY reported wednesday that speculators had attacked the currency
on the premise that this would compel the central bank and Buhari to
alter their stance against the devaluation of the currency.
But they were disappointed when Buhari, in Egypt at the weekend,
adamantly ruled out the devaluation of the naira on the grounds that
Nigeria does not have the competitive advantage to benefit from an
official currency adjustment.
Meanwhile, the International Monetary Fund (IMF) has reiterated its
call on Nigeria to lift its foreign exchange curbs, noting that
eliminating existing macroeconomic imbalances and achieving sustained
private sector-led growth require a renewed focus on ensuring the
competitiveness of the economy.
As part of a credible package of policies, the fund recommended that
the naira “exchange rate should be allowed to reflect market forces more
and restrictions on access to foreign exchange removed, while improving
the functioning of the interbank foreign exchange market (IFEM)”.
In addition, it stated that it “will be important for the regulatory
and supervisory frameworks to ensure a strong and resilient financial
sector that can support private sector investment across production
segments (including SMEs) at reasonable financing costs”.
The multilateral institution stated this in its 2016 Article IV Mission
statement on Nigeria that was posted on its website yesterday. It
however stressed that the views expressed in the statement were those of
its staff who visited Nigeria between December 14-17, 2015 and January
10–25, 2016, saying they do not necessarily represent the views of the
IMF’s executive board.
It pointed out that Nigeria was facing the impact of a sharp decline in
oil prices, adding that due to its dependence on oil revenues, the
general government deficit doubled to about 3.3 per cent of GDP in 2015,
despite a sharp reduction in public investment.
Nigeria’s exports dropped about 40 per cent, pushing the current
account deficit to an estimated 2.4 per cent of Gross Domestic Product
(GDP), with foreign portfolio flows slowing significantly, reserves fell
to $28.3 billion at end-2015.
It added: “Foreign exchange restrictions introduced by the Central Bank
of Nigeria (CBN) to protect reserves have impacted significantly
segments of the private sector that depend on an adequate supply of
foreign currencies.
“Coupled with fuel shortages in the first half of the year and lower
investor confidence, growth is estimated to have slowed to 2.8 per cent
in 2015 (from 6.3 per cent in 2014), weakening corporate balance sheets,
lowering the resilience of the banking system, and likely reversing
progress in reducing unemployment and poverty.
“Inflation increased to 9.6 per cent in December (up from 7.9 per cent
in December 2014), above the CBN’s medium term target range of 6 – 9 per
cent.
“With oil prices expected to remain low for a long time, continuing
risk aversion by international investors, and downside risks in the
global economy, the outlook remains challenging. The (Nigerian)
authorities’ policy response has focused on seeking to support growth,
while preserving international reserves.
“The draft 2016 budget envisaged, appropriately, a significant shift in
the composition of fiscal spending toward capital investment while
increasing the allocation for a social safety net. At the same time the
CBN has eased monetary conditions.”
Furthermore, it noted that in light of the significant macroeconomic
adjustment needed to address the permanent terms-of-trade shock, it
would be important for Nigeria to put in place an integrated package of
policies centred around: fiscal discipline; reducing external
imbalances; further improving efficiency of the banking sector; and
fostering strong implementation of structural reforms that will enhance
competitiveness and foster inclusive growth.
According to the fund, Nigeria’s growth is projected to improve
slightly to 3.2 per cent in 2016 but could rebound to 4.9 per cent in
2017, supported by an appropriate policy package that would, for
example, enable priority infrastructure investments.
“Key risks to the outlook include lower-than-budgeted oil prices,
shortfalls in non-oil revenues, a further deterioration in finances of
state and local governments, and a resurgence in security concerns.
“Establishing medium-term fiscal policy goals that support fiscal
sustainability is a priority. In particular, measures should be
implemented to boost the ratio of non-oil revenue to GDP, including from
improvements in revenue administration and broadening of the tax base;
rationalise spending; adopt safety nets for the most vulnerable; and
foster enhanced accountability and an orderly adjustment of sub-national
budgets.
“Steadfast implementation of structural reforms is key. Adopting a
sound Petroleum Industry Bill, including by applying the Anti-Money
Laundering/Combating the Financing of Terrorism framework, will help
strengthen the regulatory framework for the oil sector.
“Emphasis should be sustained on doing ‘more with less’ to improve the
efficiency of public sector service delivery and create an enabling
environment to attract investment,” the IMF added.
During the visits, the IMF team met with Vice-President Yemi Osinbajo,
Finance Minister Kemi Adeosun, Minister of Budget and Planning Udoma Udo
Udoma, CBN Governor Godwin Emefiele, senior government officials, and
representatives of the private sector.
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