Yesterday, the 17th Ministerial meeting of the Organization of Petroleum Exporting Countries and its allies (OPEC+) took place to discuss the way forward in the international oil market.
Expectedly, the meeting noted the following; the strengthening of market fundamentals following the gradual recovery of the global economy amid ongoing vaccination and increasing commercial activities, and the continued compliance by OPEC+ to the production cut as agreed at the meeting in April 2021 (compliance rate inched beyond the normal at 114.0%).
Furthermore, at the meeting, participating countries were enjoined to ensure a stable market in the mutual interest of all oil producing nations through an efficient, economic, and secure supply of the commodity, which consequently would result in improved return on investment.
OPEC+ intervention commenced on the back of the record dip in the prices of Crude Oil following the plunge in global energy demand due to the onset of the corona virus pandemic, earlier in 2020. Initially, the Cartel had settled for a 9.7mbpd production cut to match supply with demand. This has been gradually eased and will be down to 5.8mbpd by July.
Following the meeting, the prices of crude oil, building on the improved demand outlook (6.0% for 2021) and the continued control on supply, rose to US$70.69/bbl (Brent) and US$68.05/bbl (WTI), respectively.
Rising oil prices bodes well for the Nigerian budget, given its benchmark price for crude-oil for the 2021 fiscal year is pegged at US$40/bbl
Despite the improved optimism, downside risks still exist, and one of such is the likelihood of a significant increase in Iranian production volume following the revisiting of the Joint Comprehensive Plan of Action (JCPOA), mostly known as the Iran Nuclear Deal.
The meeting, if successful in subsequent rounds would imply a lift of the ban on Iranian oil production and the consequent impact on prices, hence, creating the possibility of tightening the production cut.