CONSEQUENT upon a recent production cut announced by the Organisation of Petroleum Exporting Countries (OPEC), Nigeria has cut back 12 crude oil cargoes in its November and December lifting programmes.
The cut would reduce the country’s crude output by 5 per cent.
Specifically, five cargoes from the November lifting programme and 7.6 cargoes from the December lifting schedule have been cancelled by the Nigerian National Petroleum Corporation (NNPC) in line with OPEC resolution for quota reduction by 1.5 million barrels per day effective November 1 2008.
According to a statement yesterday by the NNPC Group General Manager, Group Public Affairs of NNPC, Levi Ajuonuma, details of cargoes cancelled in both months would be sent to customers and operators in the affected terminals.
However, The Guardian gathered that Nigeria has queried the OPEC-sanctioned 113,000 barrels per day reduction in its crude output.
The country’s discontent stemmed from OPEC secretariat’s adoption of September production level, which is based on third party sources, to calculate the reduction.
Senior officers at the Energy Ministry claimed that the OPEC secretariat did not obtain recent production figures from the NNPC but patronised secondary sources to compute the crude cut.
Nigeria, which has an optimal capacity of 3 million barrels per day, currently produces less than its quota of 2.216 million barrels due to crude shut-in and security challenges in the Niger Delta.
Demand for crude has evaporated and the supply levers held by the OPEC members appear to have little influence in the current economic climate.
The OPEC, at a recent emergency meeting, slashed oil production by 1.5 million barrels to stem the dramatic collapse of oil prices. After the decision, however, crude prices plunged seven per cent more as financial markets spiralled downwards across the globe.
The oil cartel officials, however, signalled they were prepared to slice deeper quickly if crude price continues its freefall.
Before the cut, OPEC members produced 300,000 barrels a day above the group’s quota of about 29 million barrels.
If that over-production is stopped, and all members comply with the 1.5-million cut, OPEC would produce about 1.8 million fewer barrels of oil a day.
Crude price hit a historic high of nearly $150 in July. OPEC President Chakib Khelil said the organisation was ready to convene another emergency session before its next planned gathering in December in Algeria “if there are further decisions that have to be made.”
Analyst John Hall of London-based John Hall Associates said the OPEC decision would not have a dramatic effect on prices, adding that any upward trend would stop at between $80 and $90.
But there was no such trend after the OPEC announcement, as markets plunged on fear of an extended recession spread.
James R. Crawford, an analyst with Inter Emirates, said: “It is clear that the ministers are attempting to underpin at $60 a barrel but where the market will settle remains open.
“OPEC statement reflected alarm over the erosion of revenues for oil-producing nations, as did the unusually short deliberations leading to its decision.
But defending its decision, the 13-nation organisation said: “Oil prices have witnessed a dramatic collapse, unprecedented in speed and magnitude.
“This slowdown in demand is serving to exacerbate the situation in a market which has been over-supplied with crude for some time.”
The OPEC also warned of hard times ahead for suppliers, saying “the fall in demand will deepen” in the coming months.
While Iran and Venezuela pushed for a cut of two million barrels a day, but there were concerns among other OPEC members that a more severe production cut would exacerbate a deteriorating economic crisis and further destroy demand.
The OPEC indirectly asked Russia and other major oil exporters outside the organisation not to undercut efforts to prop up prices.
“OPEC cannot be expected to bear alone the burden of restoring equilibrium,” said the group.
Secretary-General, OPEC, Abdullah El-Badri, said before a meeting with Russian President Dmitry Medvedev on Wednesday that he would not ask Russia for oil production cuts as global prices fall.
Some analysts have said Russia was unlikely to agree to production cuts, given that it is already battling with falling output as West Siberian oil fields mature.
But others spoke of behind-the-scene negotiations between Moscow and OPEC on the issue.
The fall in crude prices despite OPEC’s move suggested the organisation’s power to raise prices by cutting supply might be fading amid a global economic crisis that has crimped demand for oil.
In the past, sizeable cuts in OPEC production have led to significant jumps in prices. The latest weekly report from the U.S. Department of Energy shows that demand has fallen in 38 of the past 42 weeks. U.S. demand is down nearly 10 per cent during the past four weeks year on year.
The U.S. still consumes one out of every four barrels of oil produced.