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Nigeria’s Oil Minister Emmanuel Ibe Kachikwu said that OPEC producers need to lower their production costs if they want to be able to compete effectively with U.S. shale boomers, articulating what many already suspect or fear: that the production cut is simply not enough as a long-term solution of the global glut.
Speaking to CNBC Africa, Kachikwu praised the cartel for its efforts to rebalance the market, however, saying he was confident that “prices will hold”. This confirms statements from other OPEC officials, who have suggested that the production cut might need to be extended if a more solid price rise is to be achieved. The initial agreement, which also includes 11 non-OPEC producers, envisages a reduction of about 1.8 million bpd in global daily supply.
It emerged earlier this week that some of OPEC’s biggest producers need price levels of US$60 a barrel if they are to be able to start investing in new projects. Interestingly, this price level, according to unnamed OPEC sources, is considered sufficient to discourage U.S. shale producers from building production further.
So far, the market has somewhat reluctantly acknowledged OPEC’s surprisingly high compliance rate, which reached 90 percent as of the end of January, but even so, prices have failed to move much higher than US$55 for Brent, the international benchmark, and US$54 for West Texas Intermediate.
Nigeria, which relies on oil income for two-thirds of its budget revenues, was exempted from the cut deal because of militant attacks on oil infrastructure in the Niger Delta, which crippled its energy industry. However, government efforts to appease the militants seem to be working, and earlier this week, an official from the Nigerian National Petroleum Corporation said that the country’s daily output has risen to 2.1 million barrels of crude. Maikanti Baru added that hopes are to raise this to 2.2 million bpd by the end of the year.
By Irina Slav for Oilprice.com