Oil prices have surged by around 5% to $68 a barrel after global oil cartel OPEC+ agreed to rollover its current production quotas for all members except Russia and Kazakhstan.
The improving price recovery offers hope of future rises to OPEC’s African member states, whose economies have been battered by a sustained period of low oil prices worsened by the pandemic, but commits them to strict measures to rein in their production.
Strict quota targets will continue to prevent OPEC’s African members, including Algeria, Angola, Republic of Congo, Equatorial Guinea, Gabon and Nigeria, from pumping excess oil to make up for budgetary shortfalls. Libya, also a member, is exempt from the quotas.
OPEC’s 13 members pumped 24.89m barrels per day (bpd) in February, according to a Reuters survey, down 870,000 bpd from January.
Under the latest agreement OPEC will keep about 8m bpd of crude production off the market for another month.
OPEC and non-OPEC countries are estimated to have withheld 2.3bn barrels of oil from the market from April 2020 to January 2021.
The extent of the quotas has caused disquiet among some members. Timipre Sylva, Nigeria’s minister of state for petroleum resources, engaged in “shuttle diplomacy” as special envoy of OPEC’s Joint Ministerial Monitoring Committee to Congo, Equatorial Guinea, Gabon and South Sudan, a non-OPEC member, “to discuss conformity levels with the voluntary production adjustments and compensation of over-produced volumes,” according to the cartel.
Following the talks, the ministers agreed to the request by several countries for an extension of the compensation period – under which countries agree further cuts to make up for previous missed quotas – until the end of July 2021.
Nigeria itself was commended by OPEC for achieving full conformity in January 2021 and compensating its entire overproduced volumes.
The country pumped 1.43m bpd in December, below its 1.495m bpd quota, according to an S&P Global Platts OPEC+ survey. December production was 70,000 bpd down from November and its lowest level since August 2016.
All of OPEC’s African members complied with quotas in January, with the exception of Equatorial Guinea, which exceeded its quota by around 25,000 bpd.
The agreement was welcomed by some analysts, who predicted it could support oil prices going forward.
“We think most countries are likely to adhere to their pre-ascribed quotas, so this decision supports our view that oil prices will hold on their recent gains over the next few months,” says Samuel Burman, assistant commodities economist at Capital Economics.
Goldman Sachs has lifted its Brent forecast to $80 a barrel by 3Q, predicting that the cartel will pursue a “tight oil market strategy”. But some analysts and consuming countries fear that an oil market rally risks impairing a global economy recovery from the pandemic.