Crude oil outages in Nigeria have been a blessing in disguise for the global oil market, shooting up price to over $50 per barrel in the last few months. Just in the wake of global oil price crashing below $50 from mid-2014 due to over-supply from few OPEC countries like Iraq, Iran, Saudi Arabia, Qatar and others- and the global oil market looking upon OPEC to freeze oil production to boost prices, a new militant group in Nigeria’s Delta, Niger Delta Avengers, NDA, came in to ‘save the day’. Coupled with wildfire crack-ins from Canada, and political crises in Venezuela which reduced the glut, there was suddenly no need for OPEC to show its super power as one of the most powerful cartels to set the global oil price.
With spates of attacks on the country’s major oil pipelines- Forcardos, Escarvos, Agip pipeline and others, Nigeria’s oil output dropped from 2.2 million per day to 1.6 million p/d, reducing the glut in the global market and boosting price above $50 per barrel- the average amount needed by most non-OPEC countries to balance their budgets. Recently, Canada announced it has overcome its wildfire and has resumed production. Venezuela had been overproducing until 2001, but with the collapse of production after Chavez's row with Petróleos de Venezuela, S.A, (the Venezuelan state-owned oil and natural gas company) and consequent nationalisation, production data became unreliable with a large discrepancy between OPEC data and EIA data. Libya was also over-producing until political issues in the country crashed production.\
Although Nigeria is a strong member of OPEC, recent woes brought upon it by the NDA, has become a stepping stone for the world oil market price. However, U.S producers and other non- OPEC countries fear oils trapped in the country (Nigeria) may crash price once it finds its way back into the market. Now that Nigeria’s is experiencing production shut-in, countries like the United States, Iraq, Saudi Arabia and others have boost production. U.S producers have increased number of oil rigs which translates to more oil in the market in order to make more money. Non-OPEC countries have also increased spending in hope that the militancy attacks causing outages in Nigeria’s Delta will continue for oil prices to shoot to at least between $70-$90 per barrel. Iraq and Saudi Arabia have also refused to clamp down production, with Iraq increasing output after years of sanction (since 1998), was lifted in January.
Saudi Arabia did not also buy the idea of oil freeze although, it agreed to retreat if Iraq consented to freeze (Saudi Arabia has been overproducing since 2002). Over the last two years, OPEC countries have maintained a high level of oil production, averaging 31.5 million barrels per day in 2015. Too bad, the freeze deal did not go through as OPEC’s recently held bi-annual general meeting on June 2 in Vienna did not produce any agreement, making non-OPEC countries tag the cartel a toothless dog. The International Energy Agency, IEA’s recently released report quotes that although markets is now re-balancing itself with outages from countries like Nigeria, “we must not forget that there are large volumes of shut-in production, mainly in Nigeria and Libya that could return to the market, and the strong start for oil demand growth seen this year might not be maintained,” the body said.
Although the world is now enjoying the ‘benefits’ of Nigeria being out of production and not being able to export, the game is now that of the survival of the fittest, as OPEC now ‘vows’ to keep the U.S out of business by continuously pumping more into the market. However, OPEC’s bid to take over the markets with surplus oil, sending U.S producers out of market and regaining its glory as the ‘power group’, and non-OPEC countries fighting to boost price- seems to be in contrast to both OPEC’s and IEA’s recent forecast that oil price will shoot up further in the last quarter of 2016. Sources close to the situation hinted Business Times that indeed, both OPEC’s and IEA’s forecast for the rest of 2016, was based on hopes that attacks on Nigeria’s oil sources by militants who have vowed to cripple the economy except their demands are met, will continue at least for the rest of the year to boost price.