The Organisation of Petroleum Exporting Countries (OPEC) member-countries has recorded its lowest production cut output level in nearly 3 decades. This is due to production cuts after low demand for the commodity which was heavily impacted by the COVID-19 pandemic.
So, in an effort to strengthen global prices for the commodity which was struggling with weak demand during a global lockdown occasioned by the pandemic, OPEC decided to cut production to 22.69 million barrels per day. The last time production cut went this low was during the Gulf War in 1991.
One of the key stakeholders and highest producers of black gold, Saudi Arabia, has been compliant in its production cuts through the month of June. On the other side, Nigeria has promised to do its parts in implementing total compliance with the cuts.
What To Know About OPEC Production Cut
The price of Brent crude has been floating over $40 since May, compared to record lows in the preceding months. The production cuts from OPEC countries and other allies such as Russia (OPEC+) is the major reason for the stability. This has helped revive the price of Brent Crude to over $40.
Nigeria, Angola, and Iraq are still lagging in full compliance, meeting only 77%, 83%, and 70% (respectively) of their quotas. Other Gulf nations have implemented further cuts, Saudi Arabia reduced production by 1.13 million barrels to 7.53 million a day in June.
And, other members like Venezuela pumped only 340,000 barrels a day in June. Though Venezuela is exempted from cuts as the country is dealing with a series of issues from US sanctions to a severe economic recession.
Meanwhile, Russia hit its target quota for the second month in a row as countries outside the OPEC also cut production due to falling demand impacted by the COVID-19 pandemic.
How It Affects Nigeria
The production cut is indeed great news for oil-producing countries, especially a country like Nigeria. Black-gold makes about 90% of Nigeria’s foreign exchange earnings. This new development in the industry has indeed had a positive impact on Nigeria’s reserve. More than two-thirds of government revenue also comes from the downstream sector.