SAN FRANCISCO, December 04, (THEWILL) – OPEC and other oil-producing nations led by Russia have reached a deal to modestly increase production in January amidst a raging second wave of the Coronavirus pandemic.
Based on the agreement, member countries of OPEC along with Russia and other countries will raise production gradually by 500,000 barrels a day over a 3month period starting in January.
The increase, though less than 1% of the global oil market, comes amidst a second wave of Coronavirus which is currently weighing on demand.
According to reports, the agreement was a compromise between countries that wanted a much larger increase of two million barrels a day, which was previously agreed on, and others that would prefer to maintain current production cuts of c.7.7mbp. The latter are considering the many uncertainties around the pandemic and the possibilities that demand will remain low. That said, the disagreement between both groups suggests that agreed quotas may not be adhered.
It is expected that the modest increase in OPEC+ production and the prospects of discovery of effective vaccines to remain positive for oil prices in the short term if production cuts are adhered to.
The rally in oil prices is also expected to be capped by subdued growth in the global economy which would continue to limit the pace of recovery in oil demand.
In Nigeria, a combination of both higher oil prices and lower production cuts is needed to fund the country’s 2021 budget which is predicated on a production volume of 1.86mpd and oil price of US$40 per barrel.
Amidst a recession, the hope of an economic rebound is largely hinged on sustained rebound in crude prices as the country has suffered a significant slump in revenue largely due to weak oil revenue.
Furthermore, the economy continues to face severe dollar shortages due to lower oil receipts which continues to pressure the nation’s FX reserves.
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