OPEC: Nigeria elected to head a sinking boat

former Minister of Petroleum Resources, Mrs Diezani Alison-Madueke

Nigeria, on Thursday made history, as the nation’s Minister of Petroleum, Dieziani Alison-Madueke was elected the first female president of the Organization of Petroleum Exporting Countries (OPEC). 

She was elected at the ongoing 166th General Meeting of the body in Vienna, Austria, igniting joyous moments, in and outside the country: even as analysts described the OPEC , an organization she would now direct for the next one year, as a gradually sinking boat.

By her election, Dieziani now  replaces former OPEC president, Libyan Vice Prime Minister for Corporations, Abdourhman Atahar, as she is expected to resume office, immediately.

Experts opinion posited that while her election may enable a woman with a maternal instinct and native wisdom takeover the direct steering of the body, alongside a high probability of stabilizing price volatility, the new President would nonetheless, be handicapped by development in products production elsewhere.

“I will agree with you, that may slightly be able to influence the doves, like Kuwait, Bahrain and even Saudi Arabia, but what would her effort amount to, in view of the rising rate of production by oil companies in the US?” asked Anthony Emeordi, an industry watcher.

Speaking further, he stressed the need that people must focus on Supply axis, rather than the Demand curve, adding that common sense affirms that price would forever continue to fall, in so far as Supply continues to exceed demand, in a free market!

“This woman has just been elected the President of a gradually sinking boat”, he stated, adding that whether OPEC cuts supply or not, the increasing waves of production from North America would soon exceed half of what the entire OPEC members can produce.

“The Nigerian Government should put on its thinking cap; the tea party is over. We elected, I mean some of us, we voted Jonathan because of the oil influence. So, he must manage it well, preferably, by appointing a new Minister of Finance. 

“The one we have now, from all indications, would emphasize belt tightening far more than anything else, as if we had ever wore loose belts, before”, he said further, stressing that a 30 percent fall, in oil prices may just be the beginning.

Speaking along the same line, another analyst, an Abu Dhabi Investment Authority (ADIA) staffer, Christof Ruhi said the dilemma before the OPEC  goes beyond whether to cut supply now or later, as 

“Over almost four years, supply disruptions have mounted in North Africa and the Middle East. By the summer of 2014, cumulative disruptions from the countries denoted in the graph alone had reached an extraordinary 3.5 Mb/d – easily the largest involuntary outage since the collapse of the Soviet Union coincided with the Iraqi invasion of Kuwait in 1991.

“Meanwhile, the shale gas “revolution” in the US spread to oil production, in the event generating the highest annual production increases the US has ever seen. In terms of “organic” growth, based on genuine capacity expansion (i.e. excluding periods where producers could rely on existing spare capacity), last year’s US increase was the fourth biggest increase in the history of global oil markets. And so far, US tight oil production continues to rise.

“So many moving parts would normally lead to a period of great price volatility, as these moving bits and pieces adjust to each other.

“They didn’t, because the production increases in the US were neutralized, almost barrel for barrel, by supply disruptions in Africa and the Middle East. Even the time profiles look identical. If a difference occurred between aggregate (global) supply and demand at all, it was rebalanced by Saudi Arabia, which during this period returned to its traditional role as a swing producer.

“Oil markets today would look very different without this accidental match: Had we witnessed only supply outages on the scale they actually happened, we would have seen prices spiking; and had we seen only the progress in shale production on the scale it actually happened, prices would have come under pressure much earlier” he argued 

further, stressing that the current situation of oversupply in global oil markets is likely to be with us for a little longer.

” Whatever the future holds, even the present situation leaves OPEC now with a seemingly simple choice – to cut production or not to cut production, and to accept lower prices for what looks likely a sustained period of time.

“The argument for production cuts is to bring prices back up. The argument for leaving production levels broadly intact traditionally may have been to lend support to a fragile global economic recovery – and hence oil consumption growth. However, increasingly a second argument has gained currency, namely to maintain production in order to undermine price sensitive American shale oil growth, which would be hurt by lower prices. How price sensitive US shale oil (and Canadian oil sands) are is today’s multi-billion Dollar question (quite literally). It is this second idea that is the relevant strategic consideration today”, he explained further, even as he tasked whether this could indeed be done?

Christof noted that current cost for unconventional oil production varies between $80-85 per barrel for Canadian heavy, and $60-65 or below for US tight oil.
What this analysis imply therefore while the lower cost of procurement may continue to favour Nigeria, the high cost of freight may end up taking buyers, elsewhere!