The international oil benchmark, Brent crude, tumbled below the $70 per barrel mark on Monday after the Organisation of the Petroleum Exporting Countries and its allies agreed to increase their production by 400,000 barrels per day starting from August.
Brent, against which Nigeria’s crude oil is priced, fell by $5.01 to $68.58 per barrel as of 7:25pm Nigerian time on Monday, the lowest level since May 21.
After two and a half weeks of wrangling, OPEC and its allies, a group called OPEC+, resolved on Sunday to increase their overall production by 400,000bpd on a monthly basis starting from August until phasing out the 5.8 million bpd production adjustment.
The alliance also granted five countries – Saudi Arabia, Russia, the UAE, Iraq and Kuwait – even higher output targets starting in May 2022, according to S&P Global Platts.
The OPEC+ resolution puts an end to an acrimonious spat between Saudi Arabia and the UAE, which had arisen after the UAE had objected to Saudi Arabia’s plan to tie OPEC+ production increases to a lengthening of the supply management pact.
The UAE had insisted that its baseline production level, from which its quota is determined, be raised first.
In an appeasement to the UAE, the country will receive a 332,000 bpd boost to its reference production level, from which quotas are determined, starting in May 2022. Meanwhile, Saudi Arabia and Russia will also be granted 500,000 bpd baseline increases, with Iraq and Kuwait getting 150,000 bpd rises.
S&P Global Platts described the agreement as a near-term win for the group but also one that looked set to exacerbate the divide between its richer and poorer members.
It said by late 2022, when the alliance expects to have fully unwound its 5.8 million bpd in collective production cuts, those five countries would have expanded their output considerably, while most, if not all, of the remaining members would struggle to keep pace, ceding market share in the process.
According to the report, the Saudi and UAE energy ministers were all smiles following the decision.
Nigeria’s Minister of State for Petroleum Resources, Timipre Sylva, voiced his displeasure in the OPEC+ meeting, as did Algeria’s Mohamed Arkab, multiple delegates said.
Both countries are now appealing to the OPEC+ co-chairs, Saudi Arabia and Russia, for increased production allocations, as well, while Kazakhstan may also consider doing the same, the delegates said.
OPEC members Iran and Venezuela, both exempt from quotas as they grapple with US sanctions, could find it more difficult to win back customers in the face of heightened competition if the sanctions are ever relieved.