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Hope rises for Nigeria as OPEC okays 1.2mb/d production cut

dailytimes

…Oil Price Shoots above $50p/b

 

Nigeria’s economy might be on its way back to the top as the Organisation for Petroleum Exporting Countries, OPEC, has finally agreed to reduce output by 1.2 million barrels a day. Following on the heels of the announcement, benchmark Brent crude prices resumed climb to top $50 a barrel.

OPEC agreed to a deal on Wednesday- its first cuts in eight years. A cut by 1.2 million barrels a day brings its production to 32.5 million a day. Benchmark Brent crude rose 8 percent to $50.07 a barrel in London at 1:37 p.m. local time.

After weeks of often tense negotiations, the Organization of Petroleum Exporting Countries’ three biggest producers — Saudi Arabia, Iraq and Iran — resolved differences over sharing the burden of cuts. According to delegates who asked not to be named, it appears the Saudis accepted that Iran, as a special case, can raise production to about 3.9 million barrels a day.

The agreement is also likely to include an additional reduction of about 600,000 barrels a day by nonOPEC countries. “This should be a wake-up call for skeptics who have argued the death of OPEC,” said Amrita Sen, chief oil analyst at Energy Aspects Ltd.

“The group wants to push inventories down.” The deal promises to revive struggling economies of countries from Nigeria, Venezuela to Libya and restore flagging confidence in the producer bloc that controls 40 percent of the world’s oil.

However, according to Bloomberg, the consequences will reverberate far beyond OPEC, giving a boost to U.S. shale drillers crippled by a two-year price rout and oil giants such as Royal Dutch Shell Plc, which have cut spending to the bone to weather the prolonged downturn.

Morgan Stanley said Monday that an OPEC agreement could boost crude prices by $5 or more. While the deal is unlikely to be enough to wipe out the crude glut entirely — OPEC’s own estimates show it needs to pump just 31.9 million barrels a day from January to June to balance supply and demand — it clears the way for participation by non-OPEC suppliers, chiefly Russia.

Russia, the biggest producer outside the bloc, has said if OPEC agrees on individual country quotas it is ready to participate, including possibly reducing its output, a person familiar with Russian thinking said earlier.

That would mark a reversal of its previous position. OPEC had failed to bridge divisions after 10-hour talks Monday, sending prices crashing below $47 per barrel. As a result, Russia also said it will not attend crucial talks on Wednesday. OPEC officials then agreed to refer the matter to ministers for further consideration Wednesday.

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Ihesiulo Grace

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