Introduction
OPEC will reduce output by about 1.2 million barrels a day by January, part of the plan to cut its production to 32.5 million barrels. An output cuts reduces supply of crude oil to the market thus moving up prices in short and medium term.
The Good
Nigeria, Iran and Libya are given production cut exceptions. This means if Nigeria can get output up, she can earn more forex from sale of crude oil. This should allow the CBN fund imports and the reduce current account deficit. This will also reduce borrowing costs and yields will factor in new crude oil pricing to repayment.
The Bad
Rise in crude oil prices will also move up price of imported petrol. This will put significant pressures on local prices , fueling inflation and distorting the 2017 budget. There will thus be a net-off due to NNPC/CBN from export and import of petroleum products.
Rise in crude oil will only boost Forex earnings as long as crude oil output is maintained and increased in face of attacks on crude oil pipelines.
The Donald Trump
Long term prices will depend on output by shale manufacturers and US energy policy under US President Donald Trump. Mr Trump Energy plan states
- American energy dominance will be declared a strategic economic and foreign policy goal of the United States.
- America has 1.5 times as much oil as the combined proven resources of all OPEC countries; we have more Natural Gas than Russia, Iran, Qatar and Saudi Arabia Combined; we have three times more coal than Russia. Our total untapped oil and gas reserves on federal lands equal an estimated $50 trillion.
- We will become, and stay, totally independent of any need to import energy from the OPEC cartel or any nations hostile to our interests.
Should Shale and conventional oil producers improve their productivity, they can resupply the domestic American market with ‘cheaper” oil thus eliminating the need for import of crude . The US has also commenced exports of crude oil, thus directly competing with OPEC. Russia will also have a say as they are a key swing producer
Summary
Key to Nigeria is calm and peace in the Niger Delta, the military actions have not stopped the destruction of pipelines. Also important is the management of forex earnings from crude oil exports to fund imports and boost manufacturing input supply.
Long term solutions is for Nigeria to eliminate the need for fuel imports thus allowing for a maximizing of crude price hikes to the economy/ Subsequent to this is a passage of relevant laws like the PIGB
